Federal government bail out Texas after years of insolvency unemployment taxation

Texas, a state that hates federal involvement so much that in addition to suing federal officials on a near-monthly basis it has built its own (flawed) power grid, is now benefiting from a massive federal bailout for the unemployment.

Texas Speaker of the House Dade Phelan and Lt. Gov. Dan Patrick announced last week that they would invest $ 7.2 billion from the Biden administration’s American Recovery Plan Act to repay costs billion in loans the state has taken out from the US Treasury – shifting the tax burden meant to be borne by Texas employers to taxpayers nationwide.

The state’s unemployment rates soared last spring due to the pandemic, reaching nearly 13%. The state’s anemic coffers were quickly emptied and he began to take out loans from the federal government. Then the federal government added additional money through pandemic assistance for the unemployed. State and federal unemployment benefits have stood at more than $ 51 billion in Texas since the start of the pandemic.

The plan is to wipe out the state’s $ 5.9 billion in Title XII (unemployment) loans and add more than $ 1 billion to the unemployment trust fund. This removes additional interest payments and allows the legislature and the Texas Workforce Commission – which oversees unemployment – to continue to avoid tough decisions about proper taxation. It allows the state legislature to continue its pro-business momentum, now at the expense of all other states.

“Texas hasn’t had a solvent unemployment compensation trust fund since 1974. It’s one of the worst in the country,” said Jared Walczak, vice president of state projects at the Tax Foundation.

The state will take this insolvency story and, unlike past recessions, will avoid higher taxes on its own businesses by spreading them to include businesses and people out of state.

“Yeah, well, if they were really that hot for state control, they would pay for it themselves,” said Wayne Vroman, an economist at the Urban Institute.

Every major recession in the past 25 years has sent Texas low tax business to Uncle Sam with his hand to borrow. In 2010, the state sold about $ 2 billion in bonds to pay down its federal debt from Great Recession-related unemployment claims. It took about six years and the state had to raise corporate taxes. This is the first time the state has been allowed to use federal dollars to pay off federal loans – a Peter-to-pay theft situation … well, Peter, situation.

“You don’t do financially responsible things and then Uncle Sam comes along and gets you out of the woods in a recession. And still without recognition, there is still all this rhetoric about the importance of state rights, ”said Vroman.

While Texas may be one of the oldest serial offenders, this decision may still be the best use of its ARPA funding.

“One of the biggest one-time expenses we can make right now is to replenish these trust funds. So we will be able to pay the benefits in the future, ”said Walczak.

Not only does he think this is the best use, but Walczak asked why more states haven’t already done so; they all get interest on billions of loans.

The funds have limited legal use, but Walczak said lawmakers across the country are salivating over the potential of their favorite projects. In Texas, Republican officials want to use some ARPA funds to reduce property tax.

“By forcing states to choose between cutting taxes and potentially losing billions of dollars in federal funds, the federal government threatens the right of sovereign states to determine their own tax policy,” said Ken Paxton, Attorney General of Texas, in a statement on support for a lawsuit against the restrictions.

Of course, this is not entirely true. The state can use it for things that the people giving the money have said might or might not be used.

Texas is not alone in shirking its unemployment fiduciary obligations. California and New York have both taken out massive loans (more than Texas itself) to cover their unemployment, along with many others. The state’s total nationwide debt exceeded $ 55 billion at one point. It fell to $ 45 billion in September as states rushed to pay off their balances before federal interest rates went into effect.

So far, $ 15 billion from federal CARES and ARPA has already been used to repay federal unemployment insurance-related loans, and ARPA initially had around $ 100 billion. Economists expect more states to follow Texas and others’ lead in using the fund.

Texas has already repaid $ 1.2 billion and paid just under $ 9 million in interest on its remaining loan in September.

Economists who support the use of ARPA funds in this way argue that it is breaking the cycle. It gives states that have endured 18 months of crushing unemployment the opportunity – instead of having to raise taxes and use UI taxes to pay down past UI debt – to build up their reserves up to solvency. Even with the funds from ARPA, he can legally only return the UI trust to where it was before the pandemic – which Walczak, Texas said, was around $ 4. $ 5 billion.

“So this is an important first step. But there is also a realignment that must take place if Texas is to strengthen that solvency for the next economic downturn, ”he said.

Texas must raise taxes in better times to make sure times of recession are covered, or reduce benefits. Texas gives more than the national average for weekly unemployment insurance.

The problem is, there is 40 years of evidence that won’t be the case in Texas and elsewhere. In good years, these problems fade from memory. And in the bad – when money is needed most – fragile businesses struggle to operate and often states forgo raising taxes to keep them from overburdening them, as Texas and several states across the country have done this. year.

What happens next?

If states that owe Treasury loans for unemployment insurance payments, known as advances or Title XII loans, all repay them with federal dollars, there is concern that more states will cut back. their business taxes, creating a top-down cycle of UI collection that leaves recession-level unemployment to be paid by the federal government.

But if states are essentially giving up on ensuring that even the minimum amount of money is there to pay their unemployed (as in Texas for the past 40 years), then relying on taxpayers from other states to bail you out, then why trust to the States for work?

“It’s a small step in the direction of a federal takeover,” Vroman said.

While at first glance this may seem like hyperbole, consider that Texas paid $ 13.3 billion in unemployment from the start of the pandemic until September 11. During the same period, new federal programs under Republican and Democratic presidents paid almost three times as much – $ 38 billion. If it’s not a takeover, the federal government has already clearly overtaken the states.

“Right now it feels like we’ve gone in that direction,” Walczak said. That said, he pointed to the extremes of the pandemic need as out of the ordinary. Nationalizing the program would arguably not be popular in Texas, which has yet to expand Medicaid due to concerns of federal spoofing.

It appears the pandemic has allowed him to put the issue aside in the less publicized UI arena.