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Unemployment Insurance Borrowing Now Greater Than During 1980s Recession

If you’ve been following our coverage of the nation’s unemployment insurance system, you may have concluded that things are pretty bad. (See our interactive feature showing whether your state’s fund is in the red.)

But what about some historical perspective?

It’s official, recession hounds: The 26 states with insolvent unemployment insurance trust funds have now borrowed more than was borrowed during 1981 and 1982, the last time there was a severe recession in the U.S., and oft-used benchmark for when things are Officially Really Bad.

According to this long-buried CBO document (PDF), in March 1983, total outstanding state loans were 13.7 billion, a figure that includes borrowing during 1981 and 1982 and the first quarter of 1983 plus carried-over borrowing from 1975 to 1980.

In 2009 dollars, that’s $29.5 billion. Current state borrowing is now just over $30 billion.

As we’ve written, borrowing from the federal government, which occurs when states have spent all of their own unemployment trust fund reserves, will affect states for years to come. States that cannot repay their loans before 2011 will face tens or hundreds of millions of dollars in interest payments. To shore up their funds, states have also been forced to raise taxes and in some cases cut benefits.

Of course, there are other ways of looking at historical borrowing. It’s not just how much states have borrowed – it also matters how quickly they will able to generate revenue to pay it back.

There are more workers paying into the system now than in 1983. Won’t states be able to generate more tax revenue and pay loans back faster?

Turns out, not so much – in part because many states only tax the first few thousand dollars of each worker’s earnings. (The federal government only requires states to tax the first $7,000 of earnings, a figure hasn’t changed since … 1983.) In 1981, 42 percent of eligible workers’ earnings were taxed. In 2008 that figure was only 27 percent.

In 1983, states’ borrowing was equal to about 3 percent of total taxable wages. Today, that borrowing is equal to about 2.4 percent. But never fear – states only have to borrow $6.5 billion more to make up the difference, and California alone is projected to borrow $11 billion more before the recession is over.

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