Since the end of the regular legislative session and the passage of HEA 1379, the Indiana Department of Workforce Development has compiled data and produced longer range projections that show that the intended fix for the Unemployment Insurance (UI) Trust Fund will unfortunately not be achieved. This new information is based on updated unemployment rate projections and the combined impacts of the state and federal tax increases.
While Indiana employers paid more than $500 million in unemployment insurance taxes each year from 2007 to 2009, that annual amount will more than double by 2011 and continue to increase over the next four years. That is the result of the state tax increase in HEA 1379, a federal UI tax increase that occurs when a state (like Indiana and many others) has an outstanding loan balance from the federal unemployment account and the interest on that loan. Indiana, at the end of August, had a loan balance of over $1 billion and is expected to have borrowed nearly $1.7 billion from the federal government by the end of this year and, despite UI tax increases of more than 100% on Hoosier business, that imbalance in the trust fund will also more than double – to $3.5 billion by 2012.
The Indiana Chamber will be pursuing legislation in the upcoming session of the General Assembly to delay the implementation of the new tax rates for two years. Currently, the new rates are scheduled to go into effect on January 1, 2010.
Delaying the implementation of HEA 1379 for two years will:
- Save employers $491 million in increased UI taxes and save Hoosier jobs. Many businesses, in these difficult economic times, have clearly stated that the only way to pay these increased taxes would be to reduce their number of employees. Thus, not only would the economic recovery be slowed by a reluctance to hire, but current workers would be subject to job losses – ironically making worse the problem that was intended to be solved.
- Put Indiana in the same position as more than 40 other states – in need of a federal answer to a UI trust fund situation that has reached critical levels due to the depths of the current recession. As of the end of July, 17 states had loans totaling more than $12.6 billion with another 12 to 15 states expected to have to borrow money before the end of the year. This will be a congressional solution, not a takeover of any state’s unemployment system. By delaying the state tax increases, Indiana would have a $4 billion deficit instead of $3.5 billion, but employers and employees across the state would benefit from less UI taxes paid and fewer job losses over those two years.
- The numbers outlined above are unfortunately a best-case scenario. All calculations of business tax increases thus far have not included recent unemployment experience ratings (the layoffs of the past year will lead to higher UI rates and even larger tax increases for many under HEA 1379). In addition, if the economy does not pick up at the rates projected in this independent analysis, the estimated benefit payments will increase and produce an even larger trust fund deficit.
You can calculate the financial impact HEA 1379 will have on your company at www.indianaprosperity.org.