11/22/2011 11:14 am ET | Updated Nov 22, 2011

Mitt Romney Reluctantly Supported 'Huge Increase' In Business Taxes To Pay Unemployment Benefits

WASHINGTON -- Facing a depleted unemployment insurance trust fund upon entering the Massachusetts governor's office in 2003, Mitt Romney proposed a $260 million tax increase on employers as part of a plan that included comprehensive benefit reforms.

The proposal was designed to stave off a tax increase of $600 million that would have occurred if the state legislature took no action. But the willingness to sign off on an agreement that involved even those tax hikes also reflected a type of political pragmatism that few Republicans would show today.

"There's still going to be a huge increase," Romney told The Patriot Ledger's editorial board at the time, acknowledging that his plan would also include a tax hike. "[B]ut can't we reform our system to be more economic?"

Indeed, two years after making that initial proposal, Romney had presidential ambitions and had shifted to a more conservative plank, calling for tax cuts for employers as part of comprehensive unemployment insurance reform. Six years later, second-time presidential candidate Romney has gone even further, suggesting the privatization of the program.

Romney's evolution on unemployment insurance is a quintessential example of his transition from a self-identified pragmatist to a vocal conservative. It also provides a telling demonstration of his style of governance: Prior to his pursuit of national politics, those who worked with Romney saw him as someone who valued compromise on questions of policy.

"Any governor that gets elected here in Massachusetts figures out quickly, if you are going to get anything done, you have to work with the legislature," recalled John Regan, vice president for legislative policy with the Associated Industries of Massachusetts, a business lobby that supported Romney's legislation. "That's not a [Democrat] or a [Republican] thing. It is working within the structure of state government."

By 2005, Regan added, Romney's ambitions were grander than reaching common ground with state lawmakers. "He was maybe a little disengaged and the only big exception would be the health care bill he passed in '06," he said. "Other than that, his eyes were elsewhere."

Like other governors in that class, Romney confronted budget difficulties early in his tenure. The recession of the early 2000s had cost Massachusetts 160,000 jobs, and the state's unemployment insurance fund was at risk of depletion early in 2004. Under law, the unemployment insurance tax levied on employers would go up by as much as 159 percent in some cases if the statehouse did nothing, according to the Boston Globe. Romney, hoping to move ahead of that tax hike, offered a plan that raised taxes $260 million while reducing the duration of benefits from 30 to 26 weeks -- at the time, the standard in every other state.

"Governor Romney's UI reforms were intended to head off those increases by making changes in benefits, which were among the most generous in the nation," explained his top aide Eric Fehrnstrom, via email. "It would be completely false to suggest we 'called for' tax increases. The increases in business contributions were slated to happen automatically and we moved to lessen the burden."

Romney's hands were also tied by the statehouse, which was dominated by Democrats who limited what he could do legislatively. Rather than push those limits, however, Romney tried to operate within them. Rick Lord, the president of the Associated Industries of Massachusetts, said that Romney's proposal in '03 would be considered centrist today.

Confronting depleted trust funds this past year, six states have declined to pursue the balanced approach that Romney did in 2003. Rather than getting in front of tax hikes, they dodged them completely. According to an August report by the National Employment Law Project, a worker advocacy group, Indiana, Georgia, New Jersey, South Carolina and even Massachusetts -- currently run by a Democratic governor -- have "all granted employers hundreds of millions of dollars in tax breaks through a variety of legislative measures, most frequently by intervening to cancel or delay statutory increases that were scheduled to take effect." Only Colorado and Rhode Island, NELP's report said, addressed the solvency of their trust funds by increasing payroll taxes as Romney did.

In addition, several states this past year have slashed benefits and tightened eligibility requirements for workers. Florida went the furthest, changing the law so that workers could be eligible for as few as 12 weeks of benefits if the Sunshine State's jobless rate declines. The state also enacted strict work-search requirements and made it possible for workers to be denied benefits based on out-of-the workplace misconduct.

Certainly, the state budget crises in 2011 were different then those in 2003. But Romney's calculus, Lord explained, was not strictly ideological. "It was: 'What can you get through a totally Democratic-dominated legislature?'"

"He probably thought, 'Hey, the whole concept of sharing the responsibility of all those affected is a good thing,'" Lord said. "And I think the business community would have been fairly pleased ... to get a bill that had a mix of reforms that maybe included some new revenue but also addressed our very generous benefits."

The type of mix that Romney and the business lobby wanted never came to be. When Democratic lawmakers responded to Romney's offer with one that taxed businesses $200 million more (for a total of $460 million in taxes), in addition to making smaller systematic reforms, the governor was in a bind. He sharply criticized the proposal but declined to veto it, wary of what would result from inaction.

"The business community was concerned that the original schedule of increases would go into effect if we continued to fight over it," explained Ferhnstrom.

When the bill ultimately passed through the legislative chamber, Romney let it become law without actually signing it. "Even a baby step is better than no step," he said in a press release at the time.

"If he vetoed it, it would've caused the rates to go up even higher," recalled Rich Marlin, legislative director for the Massachusetts AFL-CIO. "It would've created a much worse controversy for the business community. So he had this thing in Massachusetts where you don't sign it, you don't veto it, it can still become law. It doesn't actually sound much different from what President [Obama] was doing in Chicago where you vote present on something."

Having showed a willingness to stomach some tax hikes and yet still being handed a legislative defeat, Romney immediately pledged to revisit unemployment insurance reform later in his governorship. He predicted that there would be an "outcry from the employer community" in the state, as well as the potential loss of "tens of thousands of jobs," after which Democrats and organized labor would recognize the folly of not backing his initial plan.

"We got the appetizer," Romney said, "but we're still waiting for the main course."

But Romney's dire prophecy never came true. By 2005, Massachusetts saw job growth and its trust fund started looking better, with a 2006 year-end projected balance of $744 million.

Romney, likewise, was in a different place. After a few years as governor, he had begun contemplating a White House run. Whether in consideration of those presidential ambitions or in response to those economic conditions (or both), by the time the unemployment insurance debate rolled around two years later, Romney was no longer pairing tax hikes with benefit cuts. Rather, his proposal called for a $250 million cut on unemployment insurance taxes paid by businesses on top of a reduction in the number of weeks that workers could receive benefits to 26 and an increase in the number of weeks, from 15 to 20, that a worker had to work to qualify for benefits.

The offer stood little chance of going anywhere in the Massachusetts legislature, pitting Romney in a drawn-out fight with unions and Democrats. To this day, laid-off workers in the Bay State remain eligible for 30 weeks of benefits.

When Romney embarked on his second presidential bid, his tune on unemployment insurance reform took one more turn. When now-retired Senator Jim Bunning (R-Ky.) made a show of holding up an extension of jobless benefits because they weren't being paid for by offsetting funds, Romney, unlike much of the GOP at the time, said he was "sympathetic with the Bunning perspective." Nine months later, in a December 2010 USAToday op-ed, he resuscitated a George W. Bush-era idea for a pilot program: privatize the program.

"We need a very different model, perhaps establishing individual unemployment savings accounts over which employees would exercise direct control when they lose their jobs, or putting in place financial incentives for employers to hire and train the long-term unemployed," he wrote.

With extended federal unemployment benefits -- which kick in for workers who use up state aid -- expiring at the end of 2011, the debates over whether or not to renew benefits and reform the system remain political hot topics. Asked about the matter during an interview with the Nashua Telegraph on Monday, Romney once again flaunted his conservative colors and pledged to unveil a proposal prior to the general election.

"You know, I'd like to see us change our unemployment benefits system," he said. "In some respects, it's essential for people who have hit hard times; and other respects, it could be abused ... I would like to see something more akin to people having a personal account where they make contributions into their account, or their employer does. And if they become unemployed, they withdraw from that account -- that's perhaps matched by government, or we could include different options -- but where people don't see unemployment as something which they're not contributing to."


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