Unemployment Insurance Tax Break Takes First Legislative Step

Governor Gregoire’s proposed $300 million reduction in unemployment insurance tax increases took its first legislative step when the House Committee on Labor and Workforce Development held a public hearing last week. Time is of the essence as legislation needs to be enacted by Feb. 8 in order to reduce the expected 36 percent average increase in UI taxes in 2011.

The Governor’s proposal is split into two pieces of legislation House Bills 1090 and 1091 (companion bills have not yet been introduced in the Senate). Among other differences HB 1090 affects tax rates for 2011; HB 1091 makes them permanent.

For the business community the most promising aspect of the proposal is a reduction in the “social tax”. Businesses in Washington pay into the UI system in two ways. The first is “experienced rated” taxes based on individual employers history of layoffs which result in demand for benefits from the UI trust fund. The second is the “social tax” which all business pays to cover the costs of UI benefit costs that are not covered by experience taxes. Because of the extraordinarily high rate of unemployment and business failures over the last two years the social tax increased 35-55 percent in 2010 and will increase by another 30-45 percent in 2011 unless the Legislature intervenes.

AGC’s Legislative Counsel Van Collins testified at the hearing. “As a result of policy changes enacted several years ago Washington State has maintained an extremely good benefit structure while employers have been paying too much into the system” Collins told the Committee. “This is evidenced by the large reserve that was accumulated. We had almost 22 months of benefits in the trust as recently as 2008. The governor’s proposal makes necessary adjustments and fine tuning and ultimately brings that down to a manageable 14 months.”

While the tax reduction is good news on the face of it the construction industry will not benefit as much as most other industries because the cut in the social tax mostly benefits business with little or no history of layoffs.

There are some potential downsides to the legislation. HB 1091 adds a new benefit for training would allow the state to qualify for $98 million of federal funding that could assist the state in administering the UI program. AGC generally opposes changes that add permanent costs in future years and is analyzing this provision in conjunction with the broader business community.

In addition organized labor is demanding that new benefits for unemployed workers include additional cash payments for each of their dependents. The cost of a dependent benefit would likely result in increased taxes on businesses in the near future and AGC opposes its inclusion.

“While the inclusion of the training benefit makes the combined proposal tenuous the AGC is nonetheless willing to support it” Collins said. “However let me be clear – the AGC cannot support any other proposal for benefit expansion.”

For more information on the legislation contact Van Collins 360-352-5000.