Editorial: Real Stimulation
The federal economic stimulus package proposed by President Bush and approved by the U.S. House of Representatives is getting a good bit of attention. The proposal - which under the House's version would give couples $1,200 of free cash - is focused on spurring the economy by bolstering consumers, but it leaves out businesses, which are also feeling the strain.
But there's no reason why the Commonwealth of Massachusetts can't step in to help. The Bay State can afford its own "stimulus package" that would ease the burden on businesses created by the often abused, decreasingly useful and ridiculously expensive unemployment insurance system.
After overcharging the state's employers for so many years, the government certainly has enough in its Massachusetts Unemployment Insurance Trust Fund - $1.3 billion as of Sept. 30, 2007. That's enough to do two things: Cut the unemployment insurance tax to bring it in line with the national average and issue employers that don't abuse the system a one-time payment of $300 per employee. These checks would be an additional "stimulus package" for the state's economy and would be a small token of appreciation for years of putting cash in the pockets of people who abuse the system.
As long as unemployment remains low, and there's nothing to suggest that it won't, this plan wouldn't hurt the state a bit. And it certainly would not hurt the unemployed.
Massachusetts business owners paid an average of $629 per employee into the state's unemployment insurance system in 2006, according to a new policy brief authored in part by John O'Leary of the Boston-based Pioneer Institute. That was more than twice the national average of $298 per employee and second only to Alaska where the cost is about $750.
It's because Massachusetts employers pay more than twice the national average that we suggest the state should cut consistent employers a rebate check of $300 per employee. And the state should do so without feeling bad about leaving out the system's abusers: construction companies, temporary services firms, school bus companies and seasonal businesses, industries that take disproportionately from the system and lobby against its reform.
In 2004, according to the institute, 3.9 percent of Massachusetts firms, most from the sectors mentioned above, accounted for 32.5 percent of unemployment insurance payouts. The heavy users paid $124 million into the system that year, but their employees walked away with $403 million in benefits.
Abuse Limits
Unfortunately, the state gets no measurable benefit from its outrageously high unemployment insurance rate. Unemployment in Massachusetts is just below the national average, hovering just under 5 percent. That means virtually everyone who wants to work has a job. Unemployment insurance is supposed to provide temporary income to folks who find themselves unemployed through no fault of their own. But claimants in Massachusetts are subject to a much lower threshold to qualify for benefits and collect those benefits - up to $528 per week — for longer periods of time than claimants in any other state, according to the Pioneer Institute.
The current system hasn't brought about a sunnier business climate. Instead, it has invited abuse and misuse.
We agree with the Pioneer Institute's proposed reform measures for the state's unemployment insurance system, which include a crack down on "frequent fliers" and the abuse of the so-called "self-triggering mechanism," by which the self-employed may lay themselves off and collect a generous unemployment benefit.
The federal government is trying to use the tools in its toolbox to stimulate the national economy. We would be smart to have a similar effort here in Massachusetts, and significantly lowering the unemployment tax rate and redistributing excess funds from the state's bloated Unemployment Insurance Trust Fund would be a good place to start.
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