States are beginning to grapple with the issue of their unemployment insurance (UI) funds, which have been depleted by swaths of workers who are unemployed because of the COVID-19 pandemic.
In New Jersey, Sen. Fred H. Madden Jr. (D) has introduced legislation (S. 3011) to lessen the impact of a payroll tax increase on employers that will likely be required to shore up the state’s UI fund. The bill was introduced October 8 and was reported out of the Senate Labor Committee on a 5–0 vote and referred to the Senate Budget and Appropriations Committee the same day.
Under the bill, the cost of unemployment benefits paid to employees during the state of emergency declared March 9 by Gov. Phil Murphy (D) would be excluded from the calculation of the employer's reserve ratio used to determine the employer's contributions to the unemployment trust fund.
In October 8 testimony in support of the bill, Christopher Emigholz, vice president of government affairs for the New Jersey Business and Industry Association, said that in the absence of legislative action, New Jersey employers will face a billion-dollar UI payroll tax increase in July 2021.
Emigholz said businesses are “already down, already facing new taxes, and already burdened by new regulations, and this payroll tax increase on top of all of that would further devastate our job creators.” He also said the labor committee should consider using any future funding from the federal government to replenish the UI fund. “The quicker the fund returns to good health, the more likely it is that the worst of the automatic tax increases can be avoided."
Louisiana lawmakers are also considering legislation to address the state’s low UI fund balance. The fund, which stood at about $1.1 billion in March, has dwindled to nearly $0, Sen. Mike Reese (R) said during an October 6 Senate Labor and Industrial Relations Committee meeting.
If lawmakers don’t take action, the state’s revenue estimating conference will adopt an official projection of the trust fund balance and report the projection to the Louisiana Workforce Commission, which will trigger higher taxes on employers and lower benefits for unemployed workers, according to Reese.
Reese introduced S.C.R. 5, which would suspend the law requiring the revenue estimating conference to adopt the official projection. The measure was reported out of the labor committee October 6.
“I don’t think we want to burden our employers with an additional assessment that would occur if we recognize that $0 fund balance,” Reese said, adding that the measure would give legislators time to decide whether the state can allocate funds to replenish the UI account.
The committee also advanced accompanying measure S.C.R. 9, introduced by Senate President Patrick Page Cortez (R), which would suspend a provision of the law that provides for an unemployment insurance solvency tax until the next regular session.
Some states like Alabama and Tennessee have used funds from the federal Coronavirus Aid, Relief, and Economic Security Act to replenish their UI funds.
Meanwhile, Florida Democrats have drafted a bill to reform the unemployment system, which has been a major source of frustration for unemployed Floridians during the pandemic. Gov. Ron DeSantis (R) said in May that he would direct the inspector general to investigate the system, which some say was set up to fail.
Under the draft bill, the maximum weekly benefit would be raised from $275 to $500 and the minimum benefit would increase from $32 to $100. The bill would also increase the maximum duration of benefits to 26 weeks.
Rep. Anna Eskamani (D) told Tax Notes in an October 9 email that she and other sponsors of the proposal are waiting for a fiscal analysis to see what the cost of the proposal would be. She said a tax increase to fund the plan is "definitely on the table."
"Businesses in Florida pay the lowest unemployment insurance tax per employee by far, and fully funding a program via an increase of the taxable wage base to at least $10,000 would bring the state closer to the national average," Eskamani said.
Florida's taxable wage base is $7,000, which is the minimum taxable wage base set in 1983 by the Federal Unemployment Tax Act.
"We’re not naive to the deep budget challenges our state faces. However, if Florida can find $543 million to give back to the state’s largest corporations in a tax refund, we can definitely find a way to increase unemployment benefits to match the national average. A working unemployment insurance system is critical to our economy and the success of businesses," Eskamani added.
Michael Leachman, vice president for state fiscal policy at the Center on Budget and Policy Priorities, told Tax Notes that "the state UI system is weaker now than it should be because some states really leaned into significant permanent benefit cuts after the last recession" that were never restored.
Leachman said he thinks it is reasonable to delay tax increases to shore up the funds, considering the current economy, but he added that states "wouldn't want to permanently put that off because [they] have to get ready for the next recession."
Louisiana is an example of a state with a UI system that barely functioned before the pandemic and was already in need of reform, according to Leachman. The state's taxable wage base in 2020 is $7,700.
"There is a discussion that needs to happen about systemic improvements to make the UI system work during a recession," Leachman added.