Ohio employers face another tax hike in 2014 to help pay off the state’s unemployment-compensation loan from the federal government.
The federal employment tax paid by employers was bumped up for the third time starting yesterday under an automatic repayment system for states that have failed to repay their debts. This increase, plus two previous ones, will cost employers an additional $63 per employee this year, according to the state Department of Job and Family Services.
Employers pay state and federal payroll taxes to fund jobless benefits. But without sufficient reserves when the recession hit, Ohio and 35 other states were forced to borrow from the federal trust fund to continue paying benefits to unemployed workers.
Ohio began borrowing in January 2009, with the state’s debt peaking at $2.6 billion, said Benjamin Johnson, spokesman for the Department of Job and Family Services.
The debt is down to $1.55 billion after several state payments on the principal totaling $1.3 billion and reductions in federal employer tax credits in each of the past two years that generated $276 million applied to the balance.
According to the U.S. Department of Labor, Ohio is among 15 states and the Virgin Islands owing a combined $20.5 billion. Ohio’s $1.55 billion debt is bigger than that of all but three of the others: California ($9.7 billion); New York ($3 billion); and North Carolina ($1.8 billion).
Under the repayment system, the tax credit on federal unemployment taxes paid by employers is reduced 0.3 percent each year, effectively increasing the amount they must pay. Ohio’s credit has now been cut three times, for a total reduction of 0.9 percent.
State officials have not projected when the debt will be repaid, and employers can expect their tax burden to continue to grow.
Concerned about the impact on businesses, some House Republicans want to use the state’s estimated $404 million savings from the federally funded expansion of Ohio’s Medicaid program to pay down the debt.
Rep. Dave Hall, R-Millersburg, recently introduced a bill that would require the savings be applied to the principal of Ohio’s loan, which would reduce the debt by nearly a third. The legislation, House Bill 329, has 14 co-sponsors.
“Some business owners (in my district) brought this to my attention,” Hall said. “When you are having to pay extra money for something like this, that’s less you have for hiring and other things.”
He hopes his bill raises awareness about the debt and generates other ideas about how to pay it off. “This is just one step in the process. It will take a couple of budget cycles to handle this,” Hall said.
His proposal has competition. Other legislators have suggested using the Medicaid savings to reduce state taxes, while some have proposed using it to restore state aid to local governments that was slashed during the recession.
Meanwhile, Democrats last year proposed tapping the state’s rainy-day fund to pay down the unemployment-compensation loan.
“Anything we can do to pay down the debt is a good idea,” said Andrew Doehrel, president of the Ohio Chamber of Commerce and co-chairman of a now-defunct state commission tasked with recommending ways to keep the fund solvent.
Doehrel said the higher tax hasn’t been too hard on most businesses, but it will become a burden as it grows.
“Employers will wake up one day and look at this being $150 or $200 per employee and say: ‘Geez, what’s going on?’ Any time you increase your cost per employee, it means you can’t use the money to employ another position or do something else you want to do,” Doehrel said.
Until Hall’s bill was introduced, Ohio’s debt had gotten little attention.
The Unemployment Compensation Advisory Council, a 12-member panel of business, labor and legislative leaders, hasn’t met for three years and no longer has any members. The governor and legislative leaders appoint members, but they have not done so for several years, and there has been talk of abolishing the panel. Its most-recent recommendations — representing a compromise between business and labor — failed to win approval by the General Assembly.
“The debt has to be addressed in some way, shape or form,” Doehrel said. “But it’s no closer than we’ve talked about in the last few years. We either have to increase taxes (paid by employers) or cut benefits (given to jobless workers), or some combination of both, but neither side wants to do either.”
By Catherine Candisky - The Columbus Dispatch, Ohio (MCT)
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