Business community leery of tax cut

Plan to use stimulus money to lower unemployment benefits rate hits wall

February 06, 2010|By Julie Bykowicz | julie.bykowicz@baltsun.com

One of Gov. Martin O'Malley's signature efforts this year - a plan to cut the hefty unemployment-benefits taxes paid by businesses - has not gained the support of the business community despite weeks of talks, a senator said Friday.

"I don't think the tax cut is going to be a reality," said Sen. Thomas M. Middleton, a Democrat who has been negotiating with business groups, the governor's office, labor and other interested parties. "That's my gut feeling. We're moving away from it."

Middleton, who heads the Senate Finance Committee and the Unemployment Insurance Fund Task Force, had given the work group a deadline of today to reach a consensus, though he says talks will continue into early next week.

"We're running out of time," he said. The state Department of Labor, Licensing and Regulation tells businesses how much they need to pay in unemployment insurance taxes this year in letters that typically go out March 1.

The O'Malley plan would increase the number of out-of-work Marylanders eligible for benefits so that the state can apply for nearly $127 million in federal stimulus money to prop up the depleted unemployment-insurance fund, which businesses pay into according to a tax formula. The governor proposed using $83 million of the federal money to reduce the taxes paid by businesses.

But business groups, including the Maryland Chamber of Commerce and Maryland Retailers Association, have said the one-time cash infusion would be quickly outweighed by the permanent costs - estimated at about $20 million annually - that come with the required increase in benefits.

Middleton said new problems have emerged in discussions.

For one, he said, most business groups would prefer to keep all the federal money in the fund rather than using any of it to cut their taxes, believing that a healthy fund is more important than rate relief. And before they would sign on to the effort to go after federal money, the business groups would need assurance that the cost of the new benefits would be offset by cutting some existing benefits. Middleton said all of the stakeholders are furiously researching what cuts could be made.

Moreover, the senator said, businesses dislike the idea of tapping federal stimulus money altogether. To reach a deal, Middleton said, the business groups "need to get over the feeling that stimulus money is bad. ... Right now they're saying, 'We don't want anything to do with the federal stimulus.' "

Aides to the governor remain hopeful.

"We are actively working with employers to reach a consensus on the remaining issue - rate relief - and will do so as long as people are willing to talk," said Joseph Bryce, O'Malley's chief legislative officer. "We're all pulling in the same direction and trying to help ease the burden on employers."

Meanwhile, other parts of the governor's unemployment-insurance proposal, including spreading out the payments and reducing interest for late payments, have gained broad support and appear poised for passage by lawmakers, Middleton and Bryce said.


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