Title XII Advances is used to pay regular unemployment benefits.

Under the repayment provisions established by the federal government, if a state defaults in its payments, the credit against the gross FUTA tax is reduced by 0.3 percent beginning the second taxable year after the advance. This penalty increases by an additional 0.3 percent for each succeeding year in which there is a balance due the federal government?

Employers in those states have their gross FUTA tax rate increased by 0.3 percent the second year after the advance, then by 0.6 percent. In addition, a benefit cost ratio [BCR] of 0.5 percent is added to the credit reduction beginning with the third or fourth consecutive year in which the federal loan has not been repaid and the credit reduction state's unemployment insurance rates do not meet the minimum federal levels. At the beginning of 2021, only the Virgin Islands was affected by the credit reduction. The credit reduction was 3.7 percent. b. Should an exemption be provided to the credit reduction in Virgin Islands? Discuss the arguments in favor of such as exemption?