Jobless fund still facing problems

Jobless fund still facing problems

Fixes likely won’t prevent increases in federal taxes

The new law aimed at fixing Indiana’s bankrupt unemployment insurance fund doesn’t get the whole job done and employers likely will face higher federal taxes next year along with higher state taxes, a state oversight board heard Wednesday.

Chief Financial Officer Scott Sanders of the Indiana Department of Workforce Development told the Unemployment Insurance Board that the new law will raise about $1 billion over the next two years but Indiana might need to borrow more than that from the U.S. Labor Department this year alone to pay jobless benefits.

As a result of continued borrowing this year and next, the federal unemployment tax rate paid by Indiana employers likely will rise 38 percent next year, Sanders said. His agency has projected Indiana employers would pay an extra $59 million on top of $214.5 million they already were forecast to pay.

Under certain conditions – such as the state repaying all of the money it has borrowed by Nov. 9, 2010, plus a voluntary additional payment of $59 million – the Labor Department would not assess the higher tax rate.

“We’re not going to satisfy that,” Sanders said in an interview after the meeting.

Sanders’ comments were likely to take some lawmakers by surprise. After Gov. Mitch Daniels signed the new law last week, majority Senate Republicans issued a statement suggesting the new law averted the federal tax increase.

The federal tax rate would increase from 0.08 percent on the first $7,000 paid in wages to each employee to 1.1 percent in 2010. If Indiana hasn’t repaid its debt, the rate would go up to 1.95 percent in 2011, eventually reaching 6.2 percent in 2016.

The Labor Department has said such federal tax increases were common in the 1970s and ’80s, affecting 18 states and territories, but since then have been applied against only one state, New York, in 2005 and 2006.

Indiana employers also pay a state unemployment tax. Under the new law, next year they’ll pay 0.70 percent to 9.5 percent of the first $9,500 of a worker’s salary, with higher percentages charged on companies with a greater history of layoffs. Starting in 2011, tax rates will increase to 0.75 percent to 10.2 percent of the first $9,500.

Two of the state’s biggest business groups, the Indiana Manufacturers Association and the Indiana Chamber of Commerce, say the state tax increases – estimated to cost employers a combined $700 million over two years – will lead to greater job losses.

Vice President Brian Burton of the manufacturers group said lawmakers did not consider the new law’s impact on business.

“This will add to Indiana’s unemployment problem,” Burton told the board.

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