What Are the Consequences of Beverly Perdue’s Default on Payments to the Federal Government?

Governor Perdue’s attempt to buy votes by paying exorbitant unemployment benefits for two years has now led to a default on payments to the federal government. What are the consequences for North Carolina? The federal government has imposed a penalty on businesses to pay for her fiscal incompetence. Here are some facts concerning our state’s unemployment debt:

Facts Concerning North Carolina’s Unemployment Debt

  • Since the onset of the Great Recession, North Carolina’s Unemployment Insurance (UI) administrators have vastly outspent revenues and generated a debt of $2.6 billion with the federal government—the third-highest in the nation, on a per-capita basis.
  • The state’s debt continues to grow at an annual rate of $178 million and generated its first interest charge of $78 million in September 2011.
  • After three years of delinquency, the state faces a 0.3 percent punitive tax imposed by the federal government on N.C. wage income, starting in January 2012. That tax will step up in additional 0.3 percent increments every year until repayments begin.
  • The state’s UI benefit generosity exceeds that of all four neighboring states and also, on average, the after-tax remuneration of a minimum-wage job.


Due to Perdue’s default, North Carolina is now classified as a “Credit Reduction State” under Federal guidelines. This means every business must now pay an additional Federal Unemployment Tax (FUTA) penalty.

Publication 926

Credit reduction states. A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state.” The Department of Labor (DOL) determines these states. If an employer pays wages that are subject to the unemployment  tax laws of a credit reduction state, that must pay additional federal unemployment tax. If you paid any wages that are subject to the unemployment compensation laws in any credit reduction state, your FUTA tax credit is reduced. See the Instructions for Schedule H (Form 1040) for more information.

What is Gov. Perdue’s reaction to our state’s default on January 11th, 2012:

More Economic Ignorance from Gov. Perdue

Yesterday Gov. Perdue issued an executive order extending unemployment benefits in North Carolina. According to a statement released by her office the benefits will impact roughly 25,000 out of work North Carolinians, and will be financed exclusively with  federal money. It is understood that these funds are not being loaned to NC by the federal government, so the $2.6 billion that we already owe the feds for previous unemployment benefits will not be added to.

You have to give our government credit for finding additional methods for redistributing our wealth. The governor is taking a page directly from the Obama “Socialism for Dummies” playbook: issue an executive order to postpone a crisis. She is hoping that the people who receive the redistribution will outvote the people supporting the country. Unfortunately, she may be correct in her assessment.

David DeGerolamo

Related Articles:

First, Stop the Bleeding: Getting North Carolina Out of Its Unemployment Insurance Crisis

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1 Response to What Are the Consequences of Beverly Perdue’s Default on Payments to the Federal Government?

  1. Uncle Tom says:

    A .3 percent penalty is not strong enough to change behavior. The businesses will pay it and no recipients will know the difference.

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