Lawmakers from across Connecticut are hearing the same question from employers in their districts: Why have our federal unemployment tax bills skyrocketed over the last few years, and what will you do about it?
Employers in Connecticut have been paying the highest federal unemployment taxes in the nation—$189 per employee this year, versus $42 in most other states—for a while.
And while that peak tax will end this year, businesses can’t afford to see it come back.
The good news is that lawmakers can do something about it this year.
And given that the economy continues to struggle, they shouldn’t hesitate.
Legislators can follow the lead of their peers in other states and adopt basic reforms of the unemployment compensation system that helped those states return their systems to solvency much faster after the recession than did Connecticut’s.
Generous to a fault
The problem is Connecticut’s historic generosity in benefits paid to claimants—generosity that led to the state having to borrow nearly $1 billion from the federal government to cover benefits payouts during the depth of the recession.
Connecticut employers—who are responsible for footing the bill—have been paying that loan back ever since.
So what are neighboring states doing differently than Connecticut?
Not higher state taxes. With the exception of Rhode Island, all our neighboring states actually charge less in state unemployment taxes than Connecticut does.
With the exception of Rhode Island, all neighboring states charge less in state unemployment taxes than Connecticut.
- Raising the minimum earnings to qualify for unemployment benefits to $2,000. Claimants in Connecticut need only earn $600 in a year to qualify for benefits—the third lowest earnings requirement in the U.S. For perspective, 32 states/territories require between $2,000 and $5,000 in earnings.
- Requiring claimants to post their resumes online to receive benefits after six consecutive weeks of unemployment. Rhode Island recently instituted this reform which studies show gets the unemployed back to work faster.
- Basing benefits on an employee’s annual salary rather than two highest quarters, to avoid inequitably rewarding seasonal workers. Sixteen states base employees’ benefits on a full year’s salary.
- Freezing the maximum weekly benefit rate for three years. The maximum benefit rate is allowed to increase by $18 every year. Freezing this for three years could save as much as $10 million per year.
These simple reforms will help keep Connecticut’s Unemployment Compensation Trust Fund solvent.
Throwing more tax dollars at the problem won’t help—the best course to sustainability is long-term, measured reforms that will get us back on par with our neighboring states.