Business groups criticize new jobless-fund law-WEB ONLY

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Gov. Mitch Daniels signed legislation
yesterday that proponents hope will ultimately fix Indiana‘s bankrupt unemployment insurance
fund. But critics say the law will be far too costly for businesses and cost
the state jobs.

The bill approved by the General Assembly
last month will dramatically increase unemployment taxes on employers but will
not cut benefit payments. Proponents say it also will close loopholes in the
system and make other changes to save money.

Daniels said earlier that the bill had
flaws, including the fact that it puts the burden solely on businesses. He said
raising employer taxes and reducing benefits would have been a balanced
approach to fixing a fund that has been paying out hundreds of millions of
dollars more in benefits than it has been collecting in employer taxes.

“It doesn’t fix the problem, but it’s
some progress and it begins to make a few reforms I think will be
helpful,” Daniels said on the day after the regular session adjourned on
April 29. “It is not balanced, and that is too bad.

“So it has lots of flaws, but I’m going
to cite the [unemployment insurance] bill as an example that we are willing to
compromise and work together.”

Business groups, including the Indiana
Chamber of Commerce and the Indiana Manufacturers Association, have said the
increased taxes would hurt employers and could cost jobs. They said businesses
should not have to bear the brunt of a fix, and wanted lawmakers to tighten
eligibility rules.

“We essentially ended up with taxes
only,” said Patrick Kiely, president of the Manufacturers Association.
“There absolutely will be job losses. It’s not balanced at all.”

The group issues a statement yesterday saying the law “contains the largest
single business tax increase in Indiana‘s
history,” and would cost state employers more than $700 million in increased
unemployment insurance taxes over the next two years.

In the statement, Kiely urged legislators to
rethink the law at the special session of the General Assembly likely to take place
in June.

“This devastating tax increase at this time
will cause increased job loss and will make Indiana far less attractive for future
investment,” he said “We agree with the governor, who has said that the
legislation is flawed, imperfect and will not solve the problem. We encourage
the governor and the legislature to rethink this damaging legislation and pass
a more reasonable and balanced approach during the special legislative
session.”

Businesses currently pay between 1.1 percent
and 5.6 percent on the first $7,000 of each employee’s annual salary, with
higher percentages charged on companies with a greater history of layoffs.

Under the new law, businesses in 2010 will
pay between 0.70 percent and 9.5 percent of the first $9,500 of a worker’s
salary. Starting in 2011, tax rates will increase to 0.75 percent to 10.2
percent of the $9,500 taxable wage base.

Sen. Brandt Hershman (R-Wheatfield) has said
that 40,000 small businesses in Indiana
never tap into the fund and it made sense for them to be exempt from higher tax
rates.

“Just as high-risk drivers pay higher
premiums for their auto insurance than those motorists who rarely have
accidents, businesses that are more likely to lay off workers should shoulder
more of the burden,” Hershman said before the final bill passed both
chambers.

Proponents of the legislation expect the
rate increases to raise about $315 million a year. The bill also includes
administrative changes that lawmakers hope will save the state about $300
million annually.

The unemployment insurance fund took in $579
million last year and paid out $986 million. The fund – kept separate from the
state’s main checking account – is expected this year to distribute $900
million more than it collects.

As of late April, Indiana had borrowed nearly $800 million
from the federal government to keep the fund solvent. As of May 11, that debt
had dropped to $624 million because first-quarter tax payments had come in,
said Marc Lotter, a spokesman for the Indiana Department of Workforce Development.

But he said that debt to the federal
government is expected to be about $1.2 billion by the end of this calendar
year.

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