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Raising taxes to employers the wrong incentive to putting Arkansans back to work
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*Unemployment tax on Arkansas
Business Increasing by 10%
*Fund for Unemployment
Insurance has $223.5 million deficit
Testimony from the Department
of workforce services in the Legislative Council Committee last Friday,
revealed that the state's fund for providing unemployment services is suddenly
going to end the year at a staggering $223.5 million dollar deficit. The reason,
of course, is the growing number of claims for unemployment benefits being
filed in Arkansas due to job losses. The projected total benefits paid from the
fund are approximately $650 million by the end of the year.
If you are not familiar with
this tax, it is a premium that all employers pay to fund, what you might call
an insurance policy, for workers who lose their jobs due to any number of
reasons. If the employee is laid off, he can file an unemployment "claim" to
this fund and receive for a time a percentage of his previous income. The employer will pay a pre-set percentage of
the employee's gross income to, not only the state, but another to the federal
government as well. Fortunately, there is a cap on the amount of payroll the
employer must pay for this premium called the "wage base". The cap previously
has been $10,000 but earlier this year the legislature increased that to $12,000
in payroll which is expected to generate an additional $50 million in tax
revenue.
According to the testimony by
the Department of Workforce Services, their plan is to "Borrow" the $223
million from the federal unemployment plan to help shore up our state plan and
continue benefit payments. And because of the national state of the economy the
federal plan will not charge us interest for the first year. This will be
helpful to the state of Arkansas but kind of sounds like we are buying
furniture on credit with no interest until 2011. My concern is, after the first
year, does that mean the interest will be that much higher?
In addition to the wage base
being increased, the percentage rate that an employer pays of payroll is being
increased by 10%. I know this because as an employer myself I have just
received my notification letter that my rate is being increased for the next year.
Quite honestly this tax
increase to employers is not going to have a positive effect on the Arkansas
economy. This tax will, of course, increase the employer's overhead costs for which
he or she will have to compensate. This cost will be offset by either reducing
the workforce or a reduction in hours worked by each employee. With the
employers' reaction to the increase in costs, my fear is that the tax increase
will not only reduce the income of Arkansans, but because of the reactions by
employers, it will not create the revenue increase that Workforce Services is
expecting. In the end, it is every hard working Arkansan that will pay the
price for this tax increase.
The Department of Workforce
Services has provided us with a history and a projection, based on current criteria,
of what they expect the unemployment fund balances to look like in the future.
I have provided a link to this information here. As
you can see by the projections, the future is not bright for this fund.
Which brings to mind the
question, is this not a part of the state's budget and why is it not required
to be balanced like the rest of the state's finances? Representative Andrea Lea has asked the
council for a list of the state funds that are not included in the State's
Revenue Stabilization Act, so that we may follow up and determine if those
funds are being managed so as to not end up with enormous deficits.
The economy is slowly
bouncing back. However, the effects of
this economic downturn will be felt for years to come. It is more important than ever that we make
sure that we get the most value for every tax dollar.
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