Readers Respond

November 25, 2009

Business must fight unemployment tax increase

With the economy still struggling and unemployment levels high, we ask which should concern Marylanders the most: the balance in the Unemployment Insurance Trust Fund or jobs? The state labor department has indicated that it intends to impose a steep tax hike to replenish the trust fund, amounting to $136 to $382 per employee if the General Assembly does nothing. But the department doesn't address what that tax increase will do to the ability of Maryalnd businesses to create jobs.

The question of whether to choose the Unemployment Insurance Trust fund or jobs is absolutely critical because every additional dollar paid to the trust fund will hamper the business community's ability to create jobs in Maryland. Conversely, every dollar saved in the unemployment insurance tax allows more economic activity and job creation. This economic principle is known as the "multiplier effect" or "spending multiplier." It explains why spending in a given locality allows more consumption and increases the overall economic activity beyond the initial investment. In addition, the multiplier from an investment can repeat many times in a year.

Why would an increase in this tax suppress the multiplier effect? Because every dollar paid by employers and held in the trust fund is a dollar not going toward wages or spending in the local economy. On top of that macroeconomic scenario is the simple reality of how trust fund revenues are derived. Payroll taxes on each and every employee finance the trust fund. The fewer employees there are, the less taxable wage base there is, further straining the fund.

This is not the first time that Maryland has been caught in the grip of an economic dilemma where the general economy is lagging and the payout of unemployment insurance benefits drains the trust fund. In the recessions of the '70s and '80s, Maryland's trust fund was depleted and tax rate surcharges were imposed to replenish it. Maryland employers persuaded the General Assembly to pass legislation to limit the size of the increases both times. The case made then was to prevent unemployment insurance surcharges from causing unemployment to increase.

Maryland businesses have less than 60 days to make their views known to legislators. After the General Assembly convenes January 13, the sand begins to run out on the opportunity to reduce the looming tax increase for unemployment insurance. When Maryland lowered taxes in the last two severe recessions, employment levels increased, and the trust fund remained solvent and recovered sooner than anticipated.

It is not reasonable to completely deplete the state's trust fund balance; however, neither is taxing employers so much that they are forced to eliminate jobs. A measured response that takes job creation into account is the only way to restore long-term solvency in the trust fund. Maryland's business community and the General Assembly will need to work together to make that happen.

Ellen R. Sauerbrey and Marvin Mandel, Towson

Ms. Sauerbrey, the former Assistant Secretary of State for Population, Refugees and Migration, and Mr. Mandel, a former Maryland governor, are co-chairmen of Maryland Business for Responsive Government.

State, business community agreed on unemployment insurance tax

Four years ago the General Assembly made the state's unemployment insurance structure more fair and predictable for employers. This legislation, designed in cooperation with business groups, passed with near-unanimous support and was signed by Governor Robert L. Ehrlich Jr. It has allowed the Maryland Unemployment Insurance Trust Fund to remain solvent while the funds in 22 other states have gone bankrupt.

Unprecedented demand caused by the national economic downturn drove reserves in the trust fund to a point where the 2005 legislation automatically triggered a shift in unemployment insurance rates for next year.

The triggering mechanism was built into the legislation to make sure unemployment insurance rate shifts were prompted by financial necessity, not by politics, and to prevent employers from being shocked by emergency surtaxes of as much as 28-fold, as in past recessions. The Department of Labor, Licensing and Regulation and the governor have no discretion in determining what rate table will be in effect.

Unemployment insurance offers two critical benefits: It is a lifeline for Marylanders who have lost jobs through no fault of their own and, far from being a drain on the economy, it is a highly effective form of economic stimulus in local communities.

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