ANNAPOLIS -- To address an annual shortfall of about $36 million, the state recommended yesterday that unemployment insurance taxes be increased by 0.2 percent a year, or $14 per employee, for all employers.
The maximum tax rate was scheduled to rise from 6.0 percent to 6.5 percent July 1. So the new proposal, if approved by the General Assembly, would increase the top rate to 6.7 percent, or $469 per employee each year.
Companies are taxed on the first $7,000 of each employee's salary, and the tax rate is based on the amount of employee turnover.
But the proposal would raise taxes for all companies, including those currently assessed at the lowest rate, 0.1 percent, or $7 a year per employee. Those companies would see their taxes increase threefold under the plan advanced by the Department of Economic and Employment Development.
The plan, which Assistant Secretary Charles Middlebrooks presented to the Senate Finance Committee yesterday, brought quick reaction from legislators and business groups.
"I'm not crazy about raising [the tax] two-tenths of a percent, even though per employer it really isn't much money," said James C. Simpson, D-Charles, the committee's vice chairman. "Any time you start increasing taxes on businesses, especially in bad times, it has an adverse impact on the economy."
Stuart Gordon, of the Maryland Chamber of Commerce, called the proposed increase "unreasonable," especially in light of the fact that the department probably will have to impose a surtax of up to 1.5 percent, or $105 per employee, on all employers on May 31. The surtax is needed partly because of the rising unemployment in Maryland.
Mr. Middlebrooks said the surtax is needed to counteract shortcomings in the existing unemployment insurance system that allow some companies to avoid being charged for the benefits that are paid to their ex-workers.
Ideally, the state's unemployment insurance system charges each employer for almost all of the benefits paid to its ex-workers. But the system includes some intentional "loopholes" that allow about $36 million a year in benefits to go unpaid.
The loopholes deplete the Unemployment Insurance Trust Fund, and occasionally a surtax on all employers is needed. A rising jobless rate, which Maryland has suffered in recent months, also depletes the trust fund and tends to trigger a surtax.
The size of the surtax depends on the amount of money in the trust fund, which currently has about $509 million, Mr. Middlebrooks said.