Obama budget proposal — Long term UI tax increases with short-term relief in some states and benefit increases
Thursday, February 23, 2012 at 2:12PM President Obama released his FY 2013 budget proposal on February 13th. Although the proposal is not likely to be adopted by Congress as submitted, it is an indication of the long-term policy of this administration to increase spending on unemployment benefits and increase federal and state unemployment insurance taxes to be paid by employers over the next ten years (above the increases that are already occurring). See page 822 of the detailed description at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/appendix.pdf.
Consistent with the proposal for FY 2012, the proposal would provide short term relief from Title XII interest and FUTA offset credit penalties for states that continue to borrow for 2012 and 2013 but restore the effect of the FUTA 0.2 surtax and require states to enact a minimum state UI tax base of $15,000 for 2015 and thereafter. The net cost of the combination of these changes over ten years is still being reviewed, but it appears to be in the neighborhood of $60 billion.
The budget also includes proposals to 1) extend EUC and 100% reimbursement of regular extended benefits for ten months, 2) provide funding for states to conduct reemployment and eligibility assessments and to provide reemployment services, and 3) to create incentives for states to expand the use of the Short-Term Compensation (STC) program. UWC–-Strategic Services on Unemployment and Workers’ Compensation (UWC) has supported targeted reemployment and eligibility assessments to return claimants to work.
Employers in states that are currently borrowing could benefit from short-term relief, but many of them are already addressing state UI solvency measures to reduce or eliminate the debt. The administration is not likely to support the short-term relief without the benefit expansions and long-term tax increases that are also tied to it. Employers in states with state UI tax bases below $15,000 would see increased federal and state tax bases with no short-term federal relief. Although states with lower tax bases could adjust the state tax rate schedule, it is likely that the net impact in many states would be increased state UI taxes and changes in the distribution of state UI tax burden within the state that could create sharp increases in state UI taxes for many employers above the increases that are already being triggered.
Illinois is among the states impacted by the required increase in the state UI tax base.
UWC does not expect the President’s budget to get much traction in the House and not much in the Senate, but pieces of the proposal as a matter of policy could make it into negotiations on the extension of EUC and EB in HR 3630 later this month and legislation to address longer term deficits after the November election.
Source: UWC. Douglas J. Holmes is president of UWC – Strategic Services on Unemployment & Workers’ Compensation in Washington, DC. Doug can be reached by email at holmesd@uwcstrategy.org.