Trailing Spouse Benefit Proving of Minimal Impact

Results of the first 40 months paying unemployment benefits to military spouses leaving Virginia jobs due to family transfer. Source: VEC

Virginia’s unemployment insurance (UI) trust fund continues to show improved balances despite dropping tax rates, reflecting a strengthening economy.   The most recent semi-annual report, released at a legislative meeting yesterday, projects half as many initial claims during 2018 as there were five years ago: 134,000 this year versus the earlier 276,000.

It the trend holds that would be a 45-year low, the Daily Press reported, quoting Virginia Employment Commissioner Ellen Marie Hess.

The trust fund balance probably peaked at $1.35 billion June 30, with slight declines expected in coming months.  With the lower unemployment and higher workforce participation rates, the system is working as designed.   More than 68 percent of the almost 215,000 Virginia employers paying into the fund pay at the lowest possible tax rate, which works out to $88 per employee.

The tax rates go up with a history of layoffs or other successful claims and are higher on new employers or employers based outside of Virginia.  In general Virginia has some of the lowest taxes in the region, in part because it also has less generous payments.

The various charts track many other signs of economic improvement:  More employers registered with the system, fewer of them paying elevated taxes due to past layoffs, lower general unemployment rates, and a labor force participation rate (66.2 percent) higher than the national average.

The report also tracks the impact of a controversial recent change in the system, allowing unemployment benefit payments to the spouses of military personnel who get reassigned outside Virginia.  Prior to 2015 that was considered a voluntary termination, not a layoff, and thus not eligible for benefits.

Over the first 40 months 766 people have claimed benefits costing about $2.3 million.

Business groups, including the Virginia Chamber of Commerce, opposed giving this benefit to so-called “trailing spouses” because of fear it would be a major drain on the fund.  The employer ultimately responsible for the move, the Department of Defense, pays zero into the state UI fund, but taxes are collected from whatever employer had the departing spouse on the payroll.

So far, the number of claimants has been so small there has been no measurable effect on the fund balance or tax rates. The military spouse benefit was passed with a sunset clause and has two more years to run before the General Assembly must end or extend it.  It was advocated as another way to demonstrate Virginia’s commitment to the military, for economic as much as patriotic reasons.

Having the benefit may give Virginia some positive points should there ever be another round of base closures, but if there is and Virginia is on the losing end, the number of claims under this provision would spike.

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7 responses to “Trailing Spouse Benefit Proving of Minimal Impact

  1. Something the average person knows almost nothing about… but all such benefits – to include things like TANF, food stamps, etc.. rise and fall with the economy…. and the Feds typically step in to help when the State funds run low. Of course the Feds do that by just borrowing more money so in times of economic distress – the deficit normally increase and adds to the longer term debt.

    Of course right now – the booming economy is also being financed by the deficit… we normally argue politically about “stimulus” in times of economic distress but now – we apparently are doing “stimulus” in times good economic health.

    So all these years the GOP and Conservatives have been moaning and growing about the debt we are giving to our children – all that is apparently not true…. for why else would they give a tax cut without making sure cuts to spending were also done? The Dems when they did this – pretty much would admit that it was not good to increase the deficit and debt but the GOP and Conservatives would be apoplectic about it accusing the “progressives” and “Leftists” of “destroying the country or worse!!1

    Now.. all those folks who called themselves “Conservatives” – not so much a quiet whimper about the tax cuts that are financed by deficits. Lord. Lord.

    • Larry:

      No matter how many times you make your claim it just isn’t true. Here is a list of defects by year. Remember the “Bush tax cuts”? Supposedly they should have led to ever growing deficits according to your logic. But they didn’t. From 2004 through 2007 the deficit fell every year. The tax cuts were not repealed. In fact, two wars were being fought during those years. What changed was that the economy recovered from the Clinton dot com recession and was growing briskly. Once the 2009 recession hit all that changed. However, the correlation between tax cuts and deficit increases just wasn’t there. What was there was a huge correlation between economic health and shrinking deficits.

      I’ll grant you that economic health without tax cuts would be the best for the economy. The real question is whether tax cuts spark economic growth. The second question is how sustainable that growth really is. Tax cuts which generate sustainable economic growth have every chance of reducing the deficit. Are Trump’s tax cuts going to generate sustainable economic growth? Answer that question and you’ll have your answer to the efficacy of Trump’s domestic policy.

      • DJ – don’t confuse deficits with debt…

        deficits occur every yea and ADD to the longer term debt.

        the calculation about tax cuts is do they “pay for themselves” , i.e. does the increased economic activity that results – generate enough money to offset the loss of taxes and they don’t.

        For decades, the GOP has claimed that tax cuts have to be the result of spending cuts. They have consistently voted against tax cuts not supported by spending cuts. They voted against the stimulus during the recession on that very basis.

        From your own link – look at the next column AFTER the deficit per year to see how much it ADDED to the DEBT.

        For as long as I can remember – the GOP has hammered this reality… you can’t reduce deficits by cutting taxes but not cutting spending. Even Jim Bacon will admit this!! And Steve Haner knows it too I suspect!

  2. Fortunately, Virginia cannot behave that way. I’ve given up on expecting sound economic policy from Washington.

    • As useful chart, thank you, DJ. It notes the passage of Smoot-Hawley. It will be interesting to see the result this year of combining a tax cut intended to stimulate the economy with the strong dampening effect of a growing list of tariffs taxing our imports and exports. Unfortunately protective tariffs are not that out of line with historical GOP positions, but looks like we need to learn those lessons again.

  3. here’s a fact-based article on the tax cuts and deficits:

    Republican tax cuts to fuel historic U.S. deficits: CBO

    As Steve has pointed out – Virginia cannot run a deficit – they have to balance revenues with spending and you can bet your bippy IF tax cuts actually generated MORE revenues instead of deficits – Virginia would be cutting taxes like crazy! And if you want a real-world example – go look at Kansas which cut taxes expecting higher revenues… and it led to financial disaster!

  4. Here’s what stands out to me in Steve’s post: Virginia’s unemployment insurance fund recorded “half as many initial claims during 2018 as there were five years ago: 134,000 this year versus the earlier 276,000. It the trend holds that would be a 45-year low.”

    Let’s enjoy the good news.

    Regarding the debate between LarryG and Don… I recall reading (can’t cite the source) that the Office of Management and Budget figures that economic growth stimulated by the Trump administration’s tax cuts paid for themselves 80% of the tax cuts. That’s pretty darn good — a lot better than the Dems predicted. But the tax act still adds to the deficit.

    The proper way to frame the question is this: Is an extra X% in the economic growth rate worth increasing the deficit by $Y a year? A clear short-term benefit vs. longer-term harm.

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