We are passing along to you a letter from the U.S. Chamber of Commerce to a House of Representatives subcommittee, expressing concern about measures in the Recovery Act that will increase unemployment taxes for employers.
As we mentioned in an earlier Service Bulletin, the Recovery Act includes incentives to states for liberalizing UI benefits. The Chamber specifically expresses opposition to forcing states to approve UI claims when the reason for separation is a “compelling family reason.” Although the Recovery Act does not quite “force” states to liberalize UI benefits, the incentive payments can hardly be refused in a political sense, and we expect most states to seek the incentives (their share of $4.7 billion).
Clearly there will be increased state unemployment taxes to pay for increased UI benefits. The Chamber’s letter references a “projected 52% increase in UI tax receipts over four years.” The Chamber’s points are good, but the Recovery Act has become law and the liberalization of UI benefits looks inevitable.
Of particular interest is the Chamber’s comments that employers are likely to be asked to pay increased federal unemployment tax (in addition to significant state UI tax increases) in order to replenish the Federal Unemployment Account. We think the Chamber is correct to anticipate this increase, which could happen as early as 2010.
Currently, the net federal unemployment tax rate is 0.80% of taxable payroll, or $56 per full-time worker, per year. The deficit in the Federal Unemployment Account may very well compel legislators to increase this tax. We suspect that it is only a matter of months before a possible federal unemployment tax increase is considered.