Debt and taxes.

• Author: Mooneyham, Scott
• Position: CAPITALGOODS - Geographic overview

James Madison got it right. Dealing with taxes, it's difficult to separate self-interest from the public interest. At the nation's founding, he wrote that their apportionment could tempt lawmakers to "trample on the rules of justice. Every shilling with which they overburden the inferior number is a shilling saved to their own pockets." By "inferior number," he meant constituencies under-represented in a legislature.

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Madison's remedy to this inclination toward self-interest was a diverse, representative form of government. (OK, so his definition of diverse might not equal our own. Nonetheless, in his day putting a Pennsylvania Quaker merchant in a room with a Virginia Anglican tobacco farmer would have led to some diverse opinions.) I suppose it is in the eye of the beholder as to how well the remedy has worked. What is true--whether in 1787 or today--is that when you are the one paying the taxes, they can seem awfully burdensome. And once that money leaves your pocket, it is not always easy to see the benefits.

That cost-benefit equation is being discussed a lot these days regarding unemployment-insurance taxes in North Carolina. Unfortunately for state businesses, a big part of the benefits have already accrued. The costs, escalating after three years of high unemployment, are just now coming due. That's because North Carolina has borrowed $2.7 billion from the federal government for unemployment benefits. Now, the money has to be repaid.

So far, policymakers in Raleigh have been content mostly to sit and chew on just how to do it. State legislators instructed the Department of Commerce, which was recently given authority over the state's unemployment-benefits system, to study the question. House Speaker Thorn Tillis decided to have a separate task force examine fraud--estimated to be $170 million a year--in the system. But those studies won't change the reality facing employers, workers and decision makers. Only three real options exist: Employers are going to have to pay more taxes, general taxpayers are going to have to pitch in, or the length of time recipients get unemployment benefits must be cut.

The unemployment-insurance tax is a dedicated tax. Employers pay it, and the money goes only to pay out unemployment benefits. The arrangement protects the money and, in times of plenty, has led to surpluses and cuts in the tax. It also has put the onus on employers to repay the debt. With no action by legislators...