State considering increase in unemployment taxes

December 23, 1990|By David Conn

A worsening economy and rising unemployment have led to what state officials expect will be the first across-the-board rise in unemployment insurance taxes in five years.

State officials also said they are considering changes to the unemployment tax system that would make it more equitable. One choice could be to make the companies that lay off more workers pay a higher share of the cost of jobless benefits than they already do.

Charles O. Middlebrooks, an assistant secretary of the Department of Economic and Employment Development, said his office is still weighing the options and wants to consult further with business groups. He said he will have a recommendation for the governor before the legislative session starts in January.

The General Assembly raised the top unemployment insurance tax rate this year from $378 to $420 per employee per year. The top rate will rise again July 1, to $455 per employee, but those increases affect only the roughly 3 percent of Maryland companies that are taxed at the highest rate, Mr. Middlebrooks said.

But because of the downturn in the economy, the money in the state's unemployment insurance trust fund has fallen sharply -- from almost $600 million last year to about $530 million now -- and the Department of Economic and Employment Development will have to charge all employers a surtax to bring the trust fund back to a safer level, Mr. Middlebrooks said.

Maryland's jobless rate has risen from 3.3 percent to 4.5 percent from October 1989 to October 1990, so last year's benefits of about $200million probably will reach $260 million this year, said Pat Arnold of the department's Labor Market Analysis office.

The maximum a person can collect from the state unemployment system is $215 a week for 26 weeks, according to state unemployment insurance officials. At this time, Mr. Middlebrooks said, DEED is not considering changes in either the benefits or the eligibility requirements.

One consultant said that in a worst-case recession the fund would have only enough money to pay benefits for 4.8 months before the state was forced to borrow from the federal government. Mr. Middlebrooks disputed that figure, which he said is based on outdated assumptions about how many people tend to receive jobless benefits.

The system is supposed to charge each employer roughly the same amount its ex-employees receive in benefits, but an audit completed in June by Wayne Vroman of the Urban Institute concluded that millions of dollars worth of jobless benefits are not being charged to the employers most responsible for the rise in unemployment, and that companies with few or no layoffs are paying higher taxes as a result. The Department of Economic and Employment Development is expected to release the audit next week.

The taxes take a relatively small bite out of most companies' expenses because unemployment-insurance taxes, which range from 0.1 percent to 6 percent (6.5 percent as of July 1, 1991) are based only on the first $7,000 of each employee's annual salary.

As a result, a company with the lowest experience rating, one that has laid off few workers in the previous three years, would pay only $7 a year for each employee. A 1,000-employee company taxed at the top rate of 6 percent, however, would pay $420,000 a year in unemployment-insurance taxes. (There is also a 0.8 percent federal unemployment-insurance tax on all employers that adds $56 a year for each employee, and Congress is considering raising the taxable wage base by 43 percent.)

Next year, Mr. Middlebrooks said, the Department of Economic and Employment Development will have to add a surtax to everyone's unemployment-insurance bill. Depending on how low the fund turns out to be May 31, employers will receive an automatic surtax of between 0.6 percent and 1.5 percent.

Companiesnow at the low end of the tax scale could see their state insurance bills grow seven to 16 times higher.

That's a sharp departure for a state that currently charges among the lowest unemployment-insurance tax rates in the nation, said Ronald L. Adler, president of Laurdan Associates Inc., a Potomac consulting company that conducts an annual nationwide survey of unemployment-insurance taxes.

Maryland ranked 45th, Mr. Adler said, charging about $133 per employee this year, down from an estimated $140 last year. In 1986, the per-employee tax was $261.10, a recent high, Mr. Adler said.

But Mr. Vroman's audit shows that those payments were not charged equitably to employers. From 1986 to 1988, only 62 percent of the $603 million in benefits paid were charged directly to the employers responsible for the layoffs, the audit shows. The rest had to be distributed among all employers.

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