The National Commission on Unemployment Compensation is recommending to Congress that the Treasury pick up the tab for $12.4 billion in special unemployment benefits paid to jobless workers during the 1975-77 recession.
The federal-state unemployment insurance system borrowed most of this money from the Treasury to extend the duration of benefits for a worker from the normal 26 weeks to as much as 65 weeks in some cases.
Under existing law, employers are paying an extra two-tenths of one percent federal unemployment tax to repay the Treasury for the advances. But the debt would be wiped out and the tax canceled if Congress approves the commission proposal.
The commission, in a report to be transmitted to Congress on Friday, said the financial burdens of the 1975-77 recession were so heavy -- unemployment leaped to nearly 9 percent at one point -- that "the financial integrity of the unemployment compensation system as it has functioned for 41 years is now in question. The system obviously was not prepared for the cost levels it was called on to finance."
In 1970, the cost of the state unemployment insurance programs was running about $4.2 billion. It jumped to $18 billion in 1975, $16 billion in 1976 and $13 billion in 1977.
Over the three years, $6.6 billion of this extra cost resulted from the high unemployment rates triggering a 1970 provision allowing states to pay long-term unemployed workers up to 39 weeks of benefits instead of the normal 26.
Another $5.8 billion of the $12.4 billion in added costs resulted from new federal laws extending the benefits to 52 weeks and then to 65 weeks. The federal unemployment fund was supposed to reimburse the Treasury for the entire $5.8 billion outlay, but that debt would be canceled under the commission proposal.