Obama Proposes $74.1 Billion Unemployment Tax increase
President Obama is again proposing to make significant changes to federal unemployment compensation taxes that would provide some short-term relief to Connecticut employers but also permanent increases beginning in 2017.
The president’s proposal also confirms why state lawmakers should pass a bill (HB 5314) to help Connecticut employers pay down interest on money the state borrowed from the federal government to keep the state’s unemployment system afloat.
Similar to last year, the president wants to:
- Reinstate a 0.2% surtax on the federal unemployment tax (FUTA) and make it permanent (for wages paid on or after Jan. 1, 2015). Bringing back this surtax, which expired in 2011, would raise the total surcharge for most states to 0.8%.
- Suspend for two years (2014 and 2015) the interest payments that Connecticut and some other states are making on dollars borrowed from the federal government. However, the interest payments would return after the hiatus and Connecticut employers still owe the principal.
- Suspend for two years the 0.3% FUTA credit reduction for employers in the borrowing states
- Raise the FUTA wage base in 2017 to $15,000 per worker annually, and then index and automatically increase each year after based on wage growth. Connecticut already has a taxable wage base of $15,000, but businesses would see increased unemployment taxes as the base automatically increased each year thereafter.
- Reduce the federal UI tax from 0.8% –after the reinstatement of the surtax–to 0.37%.
The FUTA tax covers the costs of administering the unemployment insurance and job service programs in all states. In addition, it pays half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which the states may borrow, if necessarily, to pay benefits.
According to UWC, an organization that represents the nation’s business community on unemployment and workers’ compensation issues, the proposed changes would increase federal unemployment taxes by $74.1 billion over the next 10 years.
The changes—the increased surtax and potential for an annually higher wage base–would be a significant cost increase to Connecticut employers.
What’s more, interest payments would return after the two-year hiatus, and for every year that the state’s federal loan debt is outstanding, Connecticut employers’ federal tax rate is being increased by an additional 0.3%.
Getting hit with escalating unemployment compensation taxes year after year is taking its toll on Connecticut’s business community.
But state lawmakers are considering HB 5314, which would apply an estimated $60 million of the projected state budget surplus to pay a portion of the interest owed on the federal debt.
It’s a positive use of surplus funds to make a tangible impact for employers and the state’s economy.
While remains to be seen what Congress will do with the president’s budget proposal, but in Connecticut, the General Assembly can take the initiative to help remove a burden on employers in the state.
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