Connecticut State Employers Paying Highest Unemployment Taxes in U.S.

Issues & Policies

Connecticut employers will once again ring in a New Year with the highest federal unemployment taxes in the nation.
In 2016, Connecticut’s federal unemployment tax burden will rise from $161 per employee to $189 per employee—more than four times what businesses will be paying in New York, Massachusetts, Rhode Island, New Hampshire, Vermont, Maine, or New Jersey—basically anywhere besides California, Ohio and the Virgin Islands.
We’re not even close to being competitive on unemployment taxes.
Lawmakers should not accept that–closing that huge unemployment tax gap could help every business in every legislative district without taking a single cent from the state budget.
Why are Connecticut employers paying far more than their competitors in other states? Not because employers—who are solely responsible for paying back the state’s debt—haven’t been paying enough.
Connecticut’s unemployment taxes are based on the first $15,000 of an employee’s wages—higher or comparable to all the states around us, with the only exception being Rhode Island at $21,200.
All of our neighbors take in the same amount in unemployment taxes, yet none of them have the federal debt issues experienced by Connecticut. If the facts show us that the amount of unemployment taxes we take in are not the cause of our problem, we must look to how we spend.
The answer is simple:
Connecticut hasn’t yet made the same sensible unemployment benefit reforms that those other states have had the foresight  to make.
How it happened
Connecticut had to take a nearly $1 billion loan from the federal government to shore up the state’s Unemployment Compensation Trust Fund after it drained during the height of the recession.
Now, for every year the debt isn’t repaid, the taxes to repay the principal on the loan  increases.

CBIA's Eric Gjede

Our unemployment system didn't go broke overnight, but rather by years of refusing to make the right decisions.

On top of that, in addition to yearly federal unemployment tax rate increases, businesses in the state have also had to pay additional special assessments each August 1 to cover the interest on the federal loan.
But wait—there’s more.
If the loan isn’t repaid within five years, businesses can also be hit with an additional tax, unless they apply for a waiver. Connecticut's Labor Department did not apply for the waiver for rates that took effect in 2015, or that will be in effect for 2016 (years 5 and 6).
Positive reforms
Connecticut can avoid being at the top in unemployment costs by joining most other states in taming unemployment compensation costs in a reasonable way.  For example:

  1. Raise the minimum earnings to qualify for unemployment benefits to $2,000. An unemployment claimant in Connecticut need only earn $600 in a year to qualify for benefits--the third -lowest earnings requirement in the U.S. For perspective, thirty-two states/territories require between $2,000 and $5,000 in earnings.
  2. Require claimants to post their resume online as a condition to receiving benefits after six consecutive weeks. Rhode Island recently instituted this reform, already a requirement in Alaska, Hawaii, and Wisconsin. Studies show this type of requirement gets unemployed individuals back to work an average of one week faster.
  3. Base benefits on an employee's annual salary, rather than two highest quarters, to avoid unfairly rewarding seasonal workers. Unemployment benefits are based on earnings in the two highest of the last four calendar quarters. But 16 states take into account an employee's full year's salary for benefit calculations.
  4. Freeze 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, says the state, could save Connecticut employers as much as $10 million per year over the next 10 years.

Given that unemployment taxes are entirely borne by the business community, these reforms wouldn’t impact the state budget by a single penny.
Our unemployment system didn't go broke overnight, but rather by years of refusing to make the right decisions.
It's time to decide to make the same reforms our neighbors have already made. Lawmakers can help Connecticut’s competitiveness simply by putting our unemployment system's benefits back on par with our neighboring states.
For more information, email or call CBIA’s Eric Gjede (860.244.1931) | @egjede


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