Businesses agree to higher unemployment tax - East Valley Tribune: East Valley Local News

Businesses agree to higher unemployment tax

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Posted: Wednesday, April 7, 2010 11:10 am | Updated: 3:43 am, Sat Oct 8, 2011.

A House panel voted unanimously Wednesday to hike unemployment taxes on employers for the next two years.

And they did it with the blessing of the affected businesses.

SB 1041 imposes a surcharge of $42 a year on the premiums companies pay for each of their workers. The levy, if it gains final Senate and House approval, would kick in beginning in January.

But the money — estimated at more than $200 million during the two-year life of the tax — won’t do anything to boost benefits for workers, now capped by state law at $240 a week. Instead it is designed to keep companies from having to pay even more down the road.

The problem, quite simply, is the fund that finances state jobless benefits is broke. In fact, it’s worse than that.

“The Arizona trust fund, once in excess of $1 billion, one of the better funded funds in the country, is broke,” Neal Young, director of the state Department of Economic Security, told members of the House Commerce Committee.

Young said the recession has been longer and deeper than the fund, financed entirely by taxes on employers, ever anticipated. The result has been a high unemployment rate for a longer period.

At this point the state already has borrowed $33 million from the federal government to pay its share of benefits which cover the first 26 weeks of people being out of work. By law, the cost of those benefits are paid by employers.

Up to another 73 weeks are available, with those costs paid entirely by the federal government.

Young figures the state will continue borrowing $10 million a week for the foreseeable future.

The good news, at least for the time being, is the federal stimulus law makes those loans available without interest. And he said Congress may continue that policy into 2011.

At some point, though, the state is going to have to pay the money back, with whatever interest has accumulated.

But there’s another risk. Young said if the state still owes money on Nov. 10, 2012, federal officials are empowered to hike premiums on employers themselves. And that, said Farrell Quinlan, creates the possibility of some nasty surprises for employers.

“We need to get ahead of the curve,” said Quinlan, state director of the National Federation of Independent Business. “Do you pay now, a modest amount, or do you pay later?”

Quinlan said most employers believe the former is a better choice.

Right now companies pay an average of $145.60 a year for each employee. That is based on a formula of 2.08 percent of each worker’s first $7,000 of wages.

The actual amount, however, can vary widely depending on each firm’s experience, meaning how often they lay off workers. Those with the best experience are paying just $1.53 a year; companies with a lot of their former workers winding up on unemployment can pay as much as $413.

This measure provides a 0.6 percent surcharge, or $42 a year.

Proceeds would have to be kept separate and dedicated specifically to paying back the borrowed money. Only if there is money left over could the cash be used to pay actual benefits.

As approved, the levy would self-destruct in 2013 unless reauthorized.

Other business groups have lined up in support of the change. Jack Camper, president of the Tucson Metropolitan Chamber of Commerce, said they surcharge is “perfectly fine with us.”

Rep. Michele Reagan, R-Scottsdale, who chairs the Commerce Committee, said the self-imposed tax by employers is the best way to deal with the problem.

“We should fix the problem here in Arizona that we see instead of becoming insolvent and allowing the federal government to come in and impose things on our businesses that we know will be worse,” she said.

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