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Benefit cuts, premium hikes unwise

February 09, 2011
The Republican-controlled Indiana House last week voted to reduce unemployment benefits by 20 percent while raising unemployment insurance premiums paid by businesses by 80 percent in an effort to get the state's unemployment insurance trust fund, which owes almost $2 billion to the federal government, out of the red.

The state certainly can't keep paying more in unemployment benefits than it takes in in premiums, and continual borrowing from the federal government, which costs the state interest, is bad fiscal policy. However, the only real way to reduce unemployment benefits is to, well, lower unemployment. And, unfortunately, this bill likely would do just the opposite.

While the legislation — House Bill 1450 — would leave the maximum weekly jobless benefit at $390, the formula used to calculate who would be eligible and the amount they would receive would change, with construction and seasonal workers being hit the hardest. It was reported last week that Democrats say the average weekly benefit would decrease by $71.

If the unemployment rate decreased along with it, negating the need for unemployment benefits, then the bill would make sense. However, by raising the employer premium, albeit a lower amount than what lawmakers approved in 2009 before staying the increase for a year, the state is discouraging already cash-strapped businesses from adding workers. And, if no jobs are added and unemployment benefits are cut, more and more people will sink into financial hardship. Not only will those people suffer, as they won't be able to pay their bills, and in some cases lose their homes, but the economy as a whole will be negatively impacted, as fewer goods will be bought, causing more lay-offs.

Spending cuts are good, but this isn't the program to target and this isn't the time to target it. Republicans have been wise to traditionally favor tax cuts to spur economic growth, but HB 1450 goes against that philosophy. While neither higher employer premiums or reduced benefits are technically tax increases, their effects are the same.

HB 1450, unfortunately, looks at a large problem in a narrow way. State lawmakers instead should create the conditions in which businesses can prosper and, in turn, hire additional employees. This bill doesn't do that, and, in the end, may end up doing more harm.

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Barbara Shaw
Schuler Bauer
Corydon Instant Print
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Bennett and Bennett Insurance