Fixing Unemployment Insurance Financing
New York's state unemployment insurance (UI) financing is severely flawed. It is the reason we’re facing an $8 billion trust fund federal debt that will take another four to five years to pay down. It is the reason our benefit structure is mediocre at best, and inferior to benefits paid in all of our neighboring states. And it is the reason our employers are paying much higher UI taxes than they were before the pandemic.
New York’s UI tax structure causes small employers with fewer than 100 employees to pay effective tax rates (relative to total wages) that are three to four times the rates paid by large companies with 500 or more employees. Industries with low average wages pay much higher effective UI tax rates than very high-wage industries like finance, information (media and tech), professional services, and management of enterprises (i.e., corporate headquarters).
The root of the problem is New York’s unusually low taxable wage base of $12,300, lower than in 35 of the 50 states despite the fact that New York has the highest average weekly wage of all 50 states. Because of New York’s chronic UI trust fund insolvency, the state’s maximum weekly benefit has been frozen at $504 since 2019; it would be $200 more per week if our fund were solvent.
Some commentators have mistakenly attributed New York’s UI trust fund debt to fraud. This tendency was compounded by an unfortunate press release accompanying a State Comptroller audit that exaggerated the extent of fraud related to the State’s UI trust fund by a factor of 25.
New York’s UI trust fund debt burden can only be addressed by overhauling the financing system. By following the lead of other states that assess unemployment taxes on a higher portion of payroll, and also on gig companies, New York can make sure big corporations pay their share, expand the state’s inadequate benefits, and actually reduce taxes on small businesses. New York has the latitude under federal law to lessen the weight of experience rating in setting our UI tax rates to assist small businesses. Also, the State has the resources and should make permanent New York’s successful Unemployment Bridge program in order to provide crucial support to workers who are shut out of the regular unemployment system.