Will Employer Tax Hikes Follow Unemployment Fund Loans?
Connecticut employers may be hit with tax hikes after the state began borrowing money from the federal government to support its troubled unemployment trust fund.
The state Department of Labor this month took the first $220 million draw on a more than $1 billion federal loan.
Absent Congressional action to convert the loan into a grant, Connecticut employers will be solely responsible for repaying it—as they were following the 2008-2010 recession.
Connecticut employers pay federal and state taxes to fund benefits for unemployed residents.
Despite repeated calls for reforms from CBIA and other organizations, Connecticut’s unemployment trust fund has long suffered solvency issues.
Prior to the pandemic, the fund had a balance of approximately $820 million, well below its $1.7 billion solvency goal.
Historic Claim Levels
The state has received more than 750,000 unemployment benefit claims since mid-March as pandemic-related business shutdowns and restrictions saw widespread furloughs and the loss of hundreds of thousands of jobs.
Nearly $4.4 billion in state and federal benefits were paid to Connecticut claimants over the last six months.
CBIA’s Eric Gjede said the state borrowed almost $1.2 billion from the federal government after the last recession, with employers footing the bill.
That loan was not repaid until 2016, paid off through special assessments and Federal Unemployment Tax Assessment rates nearly four times the normal amount—$189 per employee compared to $42 per employee.
That was in addition to higher state unemployment taxes.
“What happened after the last recession was a warning that went unheard, despite repeated calls for much needed reforms,” Gjede said.
“The pandemic has left many businesses struggling to survive and the threat of tax hikes is a double blow.
“For Connecticut to rebuild its economy, businesses must lead the way, and higher taxes will only cripple that effort.”
Had the state enacted a series of reforms after the last recession, Gjede said, the unemployment fund would be in a much stronger position, offsetting the need for costly federal loans.
He pointed to measures implemented as best practices in other states, including requiring claimants to exhaust severance pay before collecting unemployment benefits and increasing the annual eligibility earnings threshold from $600—unchanged since 1968—to $3,000.
“There was bipartisan support for these common sense reforms two years ago, but unfortunately the legislation was never taken up on the floor of the Senate or House,” he said.
“We need to do everything we can to nurture businesses and set the foundation for rebuilding our economy—these reforms must be a priority in the 2021 legislative session.”
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