Maryland unemployment-insurance tax to drop in 2013

Employers without layoffs will see rates fall 55 percent, state says

October 14, 2012|By Jamie Smith Hopkins, The Baltimore Sun

Many Maryland employers will see the tax they pay for unemployment insurance drop by more than half next year.

The tax cut, which will be announced Monday by the state Department of Labor, Licensing and Regulation, reflects the improving employment situation in the state and should give businesses a boost as they use that money for other purposes.

The unemployment insurance tax soared several years ago as the ranks of the unemployed spiked during the recession, which in turn depleted the state's trust fund for jobless benefits. The tax adjusts automatically every year based on the fund's balance.

After three years of maximum rates, the balance in the fund rebounded to about $795 million on Sept. 30, up more than $330 million from a year earlier.

"This is very welcome news," said Ed Jacobson, president of Glass Jacobson, an accounting and wealth-management firm based in Owings Mills. "I'm happy for our clients even more so than happy for us. … It's still very challenging out there."

Paid on a per-employee basis, the quarterly tax varies based on whether an employer has laid off workers in recent years. Employers who have pay a higher rate, much higher in the cases of companies that have had large layoffs, than firms that haven't let anyone go.

For the roughly half of Maryland employers that haven't cut employees in the last few years, state unemployment insurance taxes will fall from $187 for the entire year to $85 for every worker paid at least $8,500 in 2013. That's a 55 percent reduction.

There are 31 other rates in the tax table for next year. Employers paying at the top of the range both this year and next as a result of sizable layoffs will see per-employee taxes decline 22 percent, to $892.50.

"Lowering a tax at a time when you want people to hire is a good thing," said Richard Clinch, director of economic research at the University of Baltimore's Jacob France Institute. He doubts the unemployment tax is large enough that its reduction will "lead to a sudden burst of economic activity, but it clearly removes an impediment to recovery."

Walt Clocker, president of Angel's Food Market in Pasadena, said the change will be cheered by small businesses and particularly grocers, whose margins are so tight that even a modest decrease in expenses makes a difference.

"It can literally take you from a negative cash flow back to a positive cash flow," said Clocker, chairman of the Maryland Retailers Association.

He doesn't know yet what the drop in his unemployment taxes will be — the state sends notices at the end of the year — but it should be significant, considering that they tripled when the trust fund was in trouble.

He has no shortage of ideas for what his 50-employee business could do with some extra money. Repairs. Paying down debt. "Maybe even hiring somebody."

With much about federal taxes and spending in flux, the state tax reduction is a "little bit of blue sky in an uncertain, cloudy future," said Kathleen T. Snyder, chief executive of the Maryland Chamber of Commerce.

Julie Ellen Squire, assistant secretary of unemployment insurance at the state labor department, said falling numbers of new claims for jobless benefits and a substantial drop in payments to the unemployed helped replenish the trust fund.

"This is great news for our state," Squire said. "This really shows us emerging from the recession."

She credited a state oversight committee with business and labor representatives for designing a system that allowed the trust fund to rebound after the recent recession, the worst economic crisis since the Great Depression. Maryland's fund now has the fifth-largest balance in the nation, according to Treasury Department data.

Another measure of solvency, which calculates how long a state could pay out benefits if unemployment ratcheted up to where it was at the worst point in the last two decades, ranks Maryland 17th in the country, according to the National Employment Law Project.

Many states — including Maryland — were unable to get through the recession and its aftermath without federal loans to sustain their unemployment-insurance trust funds. But Maryland paid back its loan in 2010, before interest payments kicked in.

Nineteen states and the Virgin Islands still have outstanding loans, the National Employment Law Project said.

Ronald Adler, who runs the human resources consulting firm Laurdan Associates and sits on the state's unemployment insurance oversight committee, thinks Maryland's system of automatic rate changes based on the trust fund's balance is proving a good design. Employers in states that have yet to pay off federal loans have been hit with increases in federal unemployment taxes, he noted.

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