Increase proposed in jobless tax Infusion needed for depleted fund

November 20, 1991|By David Conn

Maryland employers would pay more than $61 million in extra unemployment insurance taxes in 1993 under proposals a legislative committee unveiled yesterday.

The taxes are needed, state officials and legislators explained, to replenish the trust fund that pays unemployment benefits. That fund, which grew to $590 million two years ago, fell to $260 million earlier this month and likely will dip as low as $70 million, or less than two months worth of benefits, before it heads up again next spring. If it hits zero, the state would have to borrow from the federal government.

The trust fund hasn't been as low as $70 million since the summer of 1984, according to Charles Middlebrooks, an assistant secretary at the state Department of Economic and Employment Development. "As long as we don't do any worse than we did last year we'll be OK," he said, referring to projected layoffs.

Some of the recommendations from the legislature's Joint Subcommittee on Unemployment Insurance Taxation and Charging would raise taxes of only a small segment of Maryland's businesses. But others, including a plan to raise the taxable wage base by more than 21 percent, would increase the overall tax burden on every employer that pays unemployment insurance taxes.

A representative of the Maryland Chamber and Economic Growth Associates, which sponsored a conference on the topic yesterday, said the group would support the overall package and predicted that it would face little opposition in a key House of Delegates committee.

The state's unemployment insurance system is supposed to tax employers according to their "experience rating," which roughly corresponds to the amount of unemployment benefits paid to the employees they lay off. The tax -- currently from 0.1 percent to 6.5 percent -- is levied on the first $7,000 of each employee's annual salary, so that a company taxed at the maximum rate would pay $455 per employee.

Two main factors have led to the rapid depletion of the trust fund.

The first is the system of built-in exceptions, or "leakages," that allow some benefits to escape, uncharged to any employer. For instance, no employer currently can be taxed at more than 6.5 percent regardless of its experience rating. That exception caused $33 million to go uncharged to any employer last year. In all, $108.4 million in benefits paid last year ended up "leaking" from the trust fund because of the law's exceptions.

The second factor is the recession, which has led to an unexpected level of layoffs this year. The tax system is supposed to compensate for the leakages and the higher layoff activity by spreading the load on all employers, regardless of their level of layoffs, by imposing at least a 0.2 percent surtax on everyone.

This year the legislature increased that surtax temporarily to 2.2 percent.

But the surtax didn't take effect until Oct. 1, long after most employers paid their first $7,000 in salary to their workers. As a result, the bulk of the taxes, including the surtax, won't flow in to state coffers until April or May, after the first quarter of 1992.

If the recession lasts into next spring, many employers will be hit with a substantial tax increase just when they are least able to afford it, and that's part of the problem the joint subcommittee intends to solve with its recommendations.

Instead of relying on what is becoming a more and more regular levy of surtaxes, the changes would raise the base level of unemployment insurance taxes across the board in some cases, and only on some employers in other cases.

For instance, the panel suggests increasing the taxable wage base from $7,000 to $8,500 in 1993. That would increase all employers' tax rate by 21.4 percent, or about $29.5 million statewide, regardless of an employer's contribution to the depletion of the trust fund.

Also under consideration is a plan to raise the maximum tax rate gradually, until it reaches 7.5 percent in 1998. That idea would raise up to $28 million if the higher taxable wage base is passed as well.

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