Unemployment tax increase delayed

LIHU‘E — Gov. Neil Abercrombie signed into a law a bill on Friday that postpones unemployment insurance rate hikes for businesses for one year while keeping benefit levels elevated for recipients despite a depleted unemployment fund balance.

Had HB 2096 not passed, unemployment insurance rates for employers would have increased an average of $400 per employee, estimated Randy Francisco, president of the Kaua‘i Chamber of Commerce. The Department of Labor reports the average annual contribution for businesses in 2011 was $667 per employee.

Benefit levels for the unemployed will continue at an increased level of 75 percent of the average weekly wage rather than reverting back to 70 percent. The state unemployment rate was 6.2 percent in December, up from 5.8 percent last year. Kaua‘i’s unemployment rose from 7.8 to 8.3 percent over the same period.

The self-regulating Unemployment Insurance Trust Fund (UI) went from a balance of $552 million in January 2008 to negative $12 million by 2010, following a 2007 tax holiday for employers and a severe recession.  The fund balance, tabulated quarterly,  moved back into the black in October and totaled $13 million at the end of 2011, or 3.5 percent of adequate levels, according to the Department of Labor and Industrial Relations (DLIR). Abercrombie approved an agreement between the DLIR and the Department of Budget and Finance last year that temporarily allowed the Department of Labor to replenish the unemployment trust with funds from the state treasury in order to avoid borrowing from the federal government, which would have required a $371,000 payment in accrued interest.

But the DLIR in written testimony to the House on Feb. 27 warned that delaying an unemployment tax increase could actually increase the tax burden to employers.

“Employers would save an estimated $107 million in UI taxes in 2012, only to pay an estimated additional $131 million in taxes in 2013, 2014 and 2015 — resulting in a net tax increase of $24 million over the next four years,” DLIR Director Dwight Takamine’s written testimony stated.

“The Department of Labor wants to adjust it because the fear is the unemployment fund could run out,” Francisco said. “Economic reports show that tax revenue was up about 9 percent in January and unemployment is slowing down, so the hope is that it will buy some time.”

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