Policy Spotlight
Unemployment Insurance
If you are an employer, you have likely received a notice from the NY State Department of Labor stating that you will have to pay up to $21.25 per employee as part of the Interest Assessment Surcharge (IAS). Many employers have contacted my office to express their frustration with this surcharge and believe it is another unexpected and burdensome cost of doing business in New York. But the IAS is only a part of a much larger problem for our state, one that could lead to drastic tax increases for businesses; the real problem we are facing is an insolvent unemployment insurance trust fund. Due to the economic downturn, many states, including New York, exhausted their unemployment trust funds, which pay out benefits to unemployed individuals. Because our trust fund was insolvent, New York had to borrow money from the federal government to make benefit payments. All totaled, New York State has borrowed $3.5 billion, which will need to be repaid. In 2009 and 2010, the federal government made these loans interest-free. However, since they have not extended that provision through 2011, New York must pay roughly $95 million in interest on these loans by September 30th, 2011. Because federal law prevents New York from using general unemployment taxes to pay off the interest, the state was forced to collect the new maximum of $21.95 through the IAS. This is just to pay interest....we still owe the principle, and may need to keep borrowing if the economy does not turn around. Having a bankrupt trust fund affects business owners in many ways. Employers' federal and state unemployment tax rates are partially determined by the solvency of our trust fund. Simply put, a solvent fund lowers employers' taxes; an insolvent trust fund raises them. Additionally, without a solvent trust fund, New York faces an even more dismal situation if another recession occurs. The state will be forced to borrow billions more from the federal government, thereby significantly raising employer taxes, and/or drastically cut weekly benefits to the unemployed. If the legislature fails to act to correct this problem, the federal government will begin collecting on the $ 3.5 billion loan. They will hit each business with federal tax increases per employee, beginning in 2012 until the federal loan is repaid. According to the National Employment Law Project, it is estimated that the full repayment of this loan would not be made until 2018. This will wind up costing NYS employers a minimum of $5 Billion: $1.5 billion in interest payments( IAS), plus the repayment of $3.5 billion for the loans (which will be much more if the unemployment rates continue to be so high). Plus, our trust fund would still be insolvent and increasingly susceptible to another recession. An insolvent trust fund is also bad news for the unemployed. Unemployment benefits are a vital safety net for New Yorkers who lose their jobs through no fault of their own. These benefits have kept families in their homes and food on the table. Economists agree that these benefits stimulate the economy because the unemployed put the money they receive right back into the economy. For every dollar spent on unemployment benefits, up to $1.90 of economic activity is created. Unfortunately, New York's maximum benefit rate of $405 is significantly lower than many neighboring states, including New Jersey ($598) and Massachusetts ($625). For residents of New York, especially New York City, $405 a week barely covers rent, let alone food and utilities. New York has not raised their maximum benefit rate since 1998. It is clear that continuing to run an insolvent unemployment insurance trust fund will lead to dire consequences. Without state action, we will owe more money to the federal government, which will be recouped through more taxes on businesses. It is past time for our government to address this issue for the long-term fiscal health of our trust fund. There are currently two pieces of legislation, one federal and one state, that I strongly believe will enable New York to bring our trust fund into solvency and also provide greater benefits for the unemployed. Senator Dick Durbin of Illinois has put forth legislation (S. 386) that would waive both the interest fees on federal loans for the next two years and the requirements that the states increase their taxes on employers to pay back the interest. Employers would be refunded the IAS they are currently required to pay. This bill would allow New York to work on paying off the original loan while avoiding significant tax increases on employers. On the state level, legislation which I co-sponsor (S. 673) has been introduced to gradually raise the taxable wage base and maximum benefit rate for unemployed individuals, which would bring New York State's unemployment trust fund into solvency by indexing the taxable wage base with growth in state average wages. According to National Employment Law Project, this single policy initiative makes states three times more likely to remain solvent, even during difficult fiscal times. The taxable wage base is the amount of employee wages subject to unemployment taxes. New York State has not raised the taxable wage base since 1998, which has caused, in large part, our trust fund's insolvency. Our current taxable wage base of $8,500 is drastically lower than the national average of $15,717. My bill, S. 673, would increase the taxable wage base incrementally each year from the current $8,500 until it reached $13,500. It is important to keep in mind that while this proposal does raise the amount of income subject to state and federal unemployment taxes, it will effectively lower the actual unemployment tax rate for employers by bringing the trust fund into solvency. Additionally, if the federal bill also passes, this will allow New York to more quickly and cheaply pay off the balance and interest of the loan from the federal government, thereby avoiding the need to impose more taxes on employers. Should New York enter into another recession, we will have a fiscally sound trust fund to sustain benefit payouts while not drastically raising taxes on employers in the long term. This legislation would also gradually increase the maximum benefit rate. As discussed earlier, our current benefit rate simply has not kept up with cost of living increases. Since 1998, when the rate was last increased, the spending power of $405 has declined 20% to roughly $325. With this legislation, the maximum benefit would gradually increase up to $650, after which the maximum benefit would equal one half of the state's average weekly wage. In times of significant unemployment and an economy struggling to create jobs, we must ensure that those relying on unemployment benefits as a vital safety net can actually provide for their families. This bill would go a long way to keeping unemployed New Yorkers afloat.