The state should delay unemployment tax increases on businesses from 2010 to 2011 to help companies retain workers and possibly wait long enough for a federal bailout, Republicans who control the Indiana Senate said Tuesday.
Senate Republicans said Indiana’s economy hasn’t recovered as much as lawmakers had hoped, and that delaying the tax increases for one year would save jobs. It would also save businesses more than $250 million next year — money that will likely be added to the state’s growing tab owed to the federal government to cover jobless claims.
“Our jobs are simply not coming back in Indiana like we thought they would be by this time,” said Sen. Dennis Kruse, R-Auburn. “It’s not right for us to put this burden on the backs of the employers right now who may actually end up going out of business or going into bankruptcy or reducing their work force even further because of these increased premiums.”
The unemployment tax hikes that lawmakers approved this year were designed to help Indiana dig out from the $1.3 billion debt it owes the federal government — a liability made worse by the recession but caused by a broken unemployment insurance fund that pays out hundreds of millions of dollars a year more in benefits than it collects in employer taxes.
But since lawmakers approved the tax increases, the list of other states borrowing from the federal government has grown and the recession has continued. State unemployment funds are struggling to handle a growing number of jobless benefits recipients while fewer companies pay into the accounts. Twenty-two states and the U.S. Virgin Islands now owe a total of $19 billion.
Senate President Pro Tem David Long, R-Fort Wayne, said it doesn’t make sense for Indiana to hurt businesses in an effort to solve the problem when other states are doing nothing to repay their debt. With more states borrowing more money, the federal government could step in and forgive the loans or help states in other ways, Long said, although he acknowledged it was an uncertainty.
“We just have to wait and see what happens,” Long said. “It’s such a nationwide problem … there has to be a cure.”
Senate Republicans worked with GOP Gov. Mitch Daniels on the new unemployment insurance proposal, which they said they would push during the legislative session beginning in January.
Daniels said in a statement Tuesday that he would sign a measure to postpone the higher employer premiums.
House Speaker Patrick Bauer, D-South Bend, said Democrats who control the House would consider the plan and keep an open mind. Rep. David Niezgodski, another South Bend Democrat who helped shape the unemployment proposal during the legislative session, said he would examine the plan — but also said delaying the tax increases solely for the sake of a possible federal bailout may not be the best option.
“You can’t run away from a problem,” he said. “You have to face it head on.”
Sen. Karen Tallian, D-Portage, said some employers were scheduled to get unemployment tax reductions because of the legislation passed this year.
“Clearly, those employers will not benefit,” she said. “The real impact of this proposal is questionable.”
Indiana is expected to owe the federal government $1.7 billion by the end of this year, said Marc Lotter, a spokesman for the state Department of Workforce Development. The state will owe an estimated $2.7 billion by the end of 2010, but that debt would rise to about $2.96 billion if the employer tax increases were delayed until 2011.
Supporters of the delay said it’s worth an extra $250 million in debt to protect Indiana jobs.
“Now is not the time to raise taxes on businesses,” said House Minority Leader Brian Bosma, R-Indianapolis.
The bill lawmakers passed earlier this year phases in higher tax rates for employers while keeping jobless benefits at a maximum of $390 per week. Companies now pay between 1.1 percent and 5.6 percent on the first $7,000 of each employee’s annual salary, with higher percentages charged on companies with a greater history of layoffs.
In 2010, businesses are slated to pay between 0.70 percent and 9.5 percent of the first $9,500 of a worker’s salary. In 2011, tax rates are scheduled to increase to 0.75 percent to 10.2 percent of the $9,500 taxable wage base.
Business and industry groups that opposed the tax increase legislation welcomed the proposed delay of the increases.
“The top priority of our state should be saving existing Hoosier jobs during this severe economic downturn,” said Patrick Kiely, president of the Indiana Manufacturers Association.
The tax increases are set to take effect Jan. 1, but businesses don’t have to pay the taxes until after the year’s first quarter. That will give the General Assembly enough time to pass a bill delaying the tax hikes, Long said.
© 2009 Associated Press. Displayed by permission. All rights reserved.
