Report: Unemployment bill would cut state taxes for some businesses

dranii@newsobserver.comDecember 17, 2012 

An advocacy group for the poor estimates a legislative proposal to overhaul the state’s unemployment system would reduce benefits for jobless workers while cutting state unemployment taxes for a sizable chunk of North Carolina employers.

A report issued Monday by the N.C. Budget and Tax Center contends the proposal advanced by Republicans in the state legislature is “highly out of balance” and would be a repeat of the tax cuts implemented in the 1990s, which critics say left the state with inadequate reserves to pay unemployment benefits when the recession hit. Today the state owes $2.5 billion, money it borrowed from the federal government to pay the first 26 weeks of unemployment benefits.

“It’s a little odd that they’re trying to fix the financing of the system, pay off the debt, while cutting taxes” for some employers, said Allan Freyer, policy analyst for the center.

The center’s report estimates at least 43 percent of the wages that employers pay state taxes on, or taxable wages, would be taxed at a lower rate than businesses currently pay. Employers pay state unemployment taxes on wages up to $20,900; workers don’t pay unemployment taxes.

Given the amount of taxable wages involved, it’s clear “a pretty big chunk of the employers” across the state would pay lower rates, Freyer said. But the center was unable to estimate how many employers would pay lower taxes, or what their savings would be, based on available information.

It’s also unclear whether the reduction in state unemployment taxes for some businesses would offset higher federal unemployment taxes for employers, which are scheduled to rise at a rate of $21 per employee each year until the state pays off its debt to the federal government. The prospect of serial increases in federal unemployment taxes has made revamping the state’s unemployment system a top priority of the influential N.C. Chamber.

Calls to see more data

The author of the report and the Budget and Tax Center’s director, Alexandra Forter Sirota, said the analysis was hamstrung by a failure to obtain certain data available from the state because it involved “proprietary” tax information. Larry Parker, a spokesman for the state Division of Employment Security, said the state provided the center with extensive information but under state law couldn’t provide data that could lead to identifying tax information about individual employers.

Sen. Robert Rucho, a Republican from Mecklenburg County and co-chair of the Joint Revenue Laws Study Committee that unveiled the bill earlier this month, said he hadn’t seen the center’s report and therefore couldn’t comment on it.

Gary Salamido, a lobbyist for the N.C. Chamber, said his organization wants to see the data the center used for its calculations before commenting.

Sirota said the center hopes the report will encourage “policymakers to be transparent about ... the size of the tax cut they are giving employers and how many employers will benefit. Because we know so many who are being impacted by the benefit cuts” proposed in the bill.

Benefits proposals

The bill calls for reducing the maximum weekly benefits for jobless workers from $506 to $350. It also would reduce the maximum weeks of benefits from 26 to a sliding scale of between 12 and 20 weeks.

Legislators did not mention a potential tax cut for some businesses when they unveiled their bill this month. But they did mention an increase in state unemployment taxes for about 30 percent of businesses – an increase of 0.06 percent on employee wages up to $20,900 for employers who now pay the lowest and highest tax rates. That increase plus the impact of a 20 percent surcharge that the state has assessed for years would amount to $15.05 in additional tax per employee for those employers.

State unemployment taxes are tied to a company’s unemployment history. Freyer said the tax cut some employers would enjoy under the bill would arise from the adoption of a new tax rate formula that, in theory, aims to make state unemployment taxes “more immediately responsive to layoffs and so more fair to employers.”

The formula is pegged to a company’s credit reserve ratio, which is calculated by taking the contributions an employer has made to its unemployment insurance account divided by its total taxable payroll over the prior three years. The center estimates that employers with ratios of between zero and 2 would see a tax cut.

The report also details the impact of the proposed benefit reductions on the jobless and notes that the higher federal unemployment taxes paid by employers would end when the state erases its debt to the federal government, which is expected to occur in 2016 if the bill is passed.

However, the report notes, the cuts in benefits would be permanent.

Ranii: 919-829-4877

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