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Biz leaders relieved over one-year payroll tax-hike delay

March 15, 2010

Hoosier business leaders are breathing a sigh of relief this morning over legislators’ agreement Saturday to delay a $400 million payroll tax increase for a year. The tax hike, brokered in 2009, was meant to shore up Indiana’s bankrupt Unemployment Insurance Trust Fund.

Even so, the state’s most troubled employers won’t avoid paying the taxman more this year.

“The first thing that people need to know, a number of people will get increases, even though this was delayed,” said Indiana Manufacturers Association President Pat Kiely. “Because there were increases built into current law.”

For a decade, Indiana has spent more on unemployment insurance benefits than it drew in taxes every year. As a result, its unemployment insurance trust entered 2010 $1.6 billion in debt to the federal government. By the end of this year, Indiana’s debt is projected to top $2.5 billion.

Employers contribute payroll taxes to underwrite the trust. Their tax rates now range from 1.1 percent to 5.6 percent.

Last year, the General Assembly passed the $400 million hike to begin paying off the growing debt. Under the new law, the highest payroll tax rates would have topped 12 percent. And Kiely said the tax hike would have slapped industries hardest-hit by the recession, such as construction, manufacturing and retail.

But even under the old law, which remains in affect due to the one-year delay, rates were based on every employer’s individual history of layoffs. So businesses that trimmed their headcounts last year will see payroll taxes increase this year.

“This recession has hit a lot of folks,” Kiely said. “And it’s both small and large companies.”

It could have been worse. Indiana Chamber of Commerce executive George Raymond pointed out that Elwood-based Red Gold Inc. projected its payroll taxes would increase from $400,000 to $900,000 in 2010, if legislators hadn’t agreed to the delay. Similarly, Raymond said, Indianapolis-based Centaur Inc., the bankrupt owner of the Anderson-based horse track and casino Hoosier Park, had projected a payroll tax increase between $900,000 and $1 million.

Raymond said business groups will use the one-year delay to explore securing federal help with Indiana’s unemployment insurance problem. Indiana isn’t alone in its dilemma. By 2012, he said, as many as 40 states collectively are projected to be about $90 billion in debt for unemployment insurance benefits.

“It’s not just an Indiana problem,” said Raymond, the Chamber's vice president for human resources and labor relations. “It’s a national problem.”

Given the growing enormity of their unemployment insurance debts, Hoosier business leaders hope Uncle Sam will eventually have to offer states some kind of bailout.

“We’re not asking for a free ride here. We’re trying to come up with a rational way to deal with it, and still do business in Indiana,” Kiely said. “It’s going to be a real balancing act.”

None of the bills legislators passed late Friday or Saturday have reached Gov. Mitch Daniels desk, said Daniels spokeswoman Jane Jankowski. It usually takes a day or two following adjournment for bills to be gathered and presented to Daniels for approval. Jankowski said Daniels will review every bill, but does not currently plan to veto any pending legislation.

Both the Indiana House and Senate passed a conference committee report for HB 1336, which overhauls the Indiana Public Deposit Insurance Fund to protect state and local governments against losses due to bank failure. State Rep. Jeb Bardon, D-Indianapolis and the bill’s author, said the governor should be satisfied with HB 1336, which Daniels’ Office of Management and Budget helped craft.

“We went over it and over it,” Bardon said. “This is the bill they wanted.”

 

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