As part of our investigation into unemployment insurance, here's a look at state financing of their trust funds. Even in good years a sizable number of states had dangerously low balances combined with unsustainable tax rates.
If more money is flowing out of a state's trust fund than is flowing in, eventually the fund will go broke, even if the economy is relatively sound. The chart below shows that many states had unsustainably low tax rates even in good years like 2005 and 2006, when, instead of letting their reserves dwindle, they could have been building them up.
Number
of
States
How we arrived at these numbers: Each year, the U.S. Labor Department estimates the average tax rate necessary for a state's revenue to equal what it pays out in benefits. States counted in this chart had both an average tax rate below the estimated equilibrium tax rate and a reserve level (as measured by AHCM) of less than six months.
Source: Department of Labor, Significant Measures of UI Tax Systems
