Organizations in more than 40 states whose unemployment funds were decimated by the recession ”“ including Connecticut ”“ are urging Congress to provide relief from damaging tax increases about to hit employers in order to pay back federal loans that have allowed the states to meet benefit obligations.
Under a deluge of jobless claims, Connecticut”™s unemployment funds ran out earlier this year and the state was forced to borrow funds from the U.S. to keep paying the claims. So far, Connecticut has borrowed approximately $500 million from the U.S., and that total ultimately may approach $1 billion.
Federal law requires the states to start paying back interest of 4 percent on the loans, starting in 2011. But that will mean an additional tax on Connecticut employers already paying high unemployment taxes.
Higher taxes will only make much more difficult for employers in Connecticut to create and keep much-needed jobs.
CBIA has joined a coalition of national and state business organizations in urging Congress to adopt legislation to prevent the job-killing, loan-repayment tax increases from taking effect. Specifically, the coalition is asking federal lawmakers to:
”¢ Extend the waiver of interest on loans to states to pay unemployment compensation through 2012 ”“ without a waiver, Connecticut employers will see even higher state taxes to cover this increased cost.
Ӣ Waive Federal Unemployment Tax Act penalties, through 2012, on employers in states borrowing to pay unemployment compensation. Without a waiver, FUTA taxes on employer payroll in many states will increase by $2.5 billion for 2011 and a projected $3.0 billion for 35 states for 2012.
In addition, the groups are asking federal lawmakers to enact reforms to improve the integrity and fairness of the unemployment system.
Connecticut has lost more than 100,000 jobs since the recession began, and although some job growth is now taking place, the state”™s unemployment rate remains at 9.1 percent.
Paid entirely by employers, state unemployment tax rates are projected by the U.S. Department of Labor to increase by $11 billion from 2010 to 2011 and an additional $5 billion from 2011 to 2012. Although state unemployment tax rates are set by the individual states, federal law governs interest on loans to states to pay state unemployment compensation.
The economy appears now to be slowly turning a corner, but higher levels of unemployment persist and the dramatic increases in state and federal unemployment taxes have just begun.
Kia Murrell is associate counsel at CBIA and can be reached at kia.murrell@cbia.com.
