Marika Cabral and Mark Duggan: Texas' unemployment insurance requires reform for an equitable economic recovery

(Marika Cabral is an associate professor of economics at the University of Texas at Austin and Mark Duggan is the Trione Director of the Stanford Institute for Economic Policy Research.) Many consider Texas to be among the most independent and fiscally responsible states in the nation. But during the past year, an explosion of unemployment benefits and possible overpayments have left the state $6.6 billion in debt to the federal government. Texas’ unemployment insurance, or UI, program had major financial problems even before the pandemic. In February 2020, the U.S. Department of Labor released its annual solvency report of state UI programs. Texas was ranked second to last among all 50 states in the U.S., ahead of California and tied with New York.

Certainly, few Texans want to be grouped in a bottom three with these two states, but their programs share similar flaws that bear an unfair burden on the most economically vulnerable workers and employers. These programs are funded by payroll taxes on employers, which are invisible to workers but directly affect the cost to an employer of hiring any worker. For three decades, Texas has held its taxable wage base for UI at $9,000 — meaning, $9,000 is the maximum amount of earnings on which a Texas employer pays UI tax for any employee in a year. Texas’ UI tax rates also are “experience-rated,” taxing employers anywhere between $28 and $568 per worker annually (0.31%-6.31%) depending on the employer’s number of recent layoffs. Despite Texas holding its unemployment insurance tax base constant since 1989, the average wage in the economy has almost tripled, and Texas has kept pace by allowing unemployment insurance benefits to grow. Laid-off Texans who qualify currently receive 52% of their most recent earnings up to a weekly maximum of $535, paid for up to 26 weeks. This implies workers receive partial insurance on earnings up to $53,500 annually but pay taxes on earnings up to just $9,000 annually, granting the highest paid workers “free insurance” on $44,500 of earnings.