Republican lawmakers and business advocates are asking the Department of Labor commissioner to seek a waiver from the federal government – which would mitigate businesses’ rising unemployment tax burden – by a quickly approaching deadline Wednesday.
In a letter Monday, the lawmakers urged state Labor Commissioner Sharon Palmer to apply to the U.S. Department of Labor to seek a waiver for an added cost being tacked on to the federal unemployment tax.
The Connecticut Business & Industry Association’s vice president for government and public affairs, Bonnie Stewart, sent a similar letter to Palmer on Friday.
Under federal law, businesses pay an unemployment tax. The money is paid by employers – it is not deducted from workers’ paychecks – and is used to provide unemployment compensation payments to workers who lose their jobs, according to the Internal Revenue Service.
During the most recent recession, Connecticut borrowed money from the federal government to bolster its Unemployment Trust Fund when it became insolvent in 2009. Each year the state fails to pay that money back, the federal unemployment tax paid by Connecticut businesses rises by 0.3 percent, according to Eric Gjede, assistant counsel at CBIA. Once a state has owed money for five years, an additional cost – called the the Benefit Cost Rate add-on – is tacked on to that increased rate each year, he said.
While the state borrowed the money from the federal government, the responsibility of paying it back rests solely with Connecticut business owners, Gjede said.
But state officials have the option to apply for a waiver that would eliminate the Benefit Cost Rate add-on. The deadline to apply is Wednesday, July 1.
In an emailed statement a department spokeswoman explained that the commissioner won’t be applying for the waiver because it would cost employers more in the future.
“If we stretch out the pay-back period by seeking a waiver, employers will face another tax increase in 2017 because it could not be paid off by 2016,” Nancy Steffens, a Labor Department spokeswoman, said.
“Currently, with the BCR add-on, the FUTA tax per employee is $154. If Connecticut opted for the waiver, the cost would go down to $105 per employee, but because this would stretch out the loan, in 2017 we estimate there will still be a loan balance which would lead to a FUTA tax of approx. $175 an employee, which would be a bigger burden to employers,” Steffens said.
If the state does not apply for the waiver by Wednesday, Republican lawmakers say, Connecticut businesses will pay $196 per employee in federal unemployment tax. If a waiver for the add-on cost was sought and granted, that amount would be reduced to $147 per employee, according to the lawmakers’ letter.
“We strongly urge your agency to apply for this waiver in order to ensure a minimal increase in federal unemployment taxes to be paid by our businesses in the coming year,” the lawmakers wrote to Palmer.
The letter is signed by 40 Republican representatives and senators, including Labor Committee ranking members Rep. Dave Rutigliano and Sen. Tony Hwang.
“Unfortunately, last year Connecticut decided not to take this cost-saving opportunity on behalf of it employers,” the lawmakers’ letter said. “Our state had the highest unemployment tax burden placed on businesses in the nation last year; it seems only common sense to apply for the waiver from the BCR add-on as it will reduce this liability.”
The legislators and Gjede said Connecticut was the only state last year that was eligible for the waiver but did not apply for it. This is the sixth year the state has owed the federal government money and, therefore, the second year in which Connecticut is eligible to apply for the add-on waiver.
The U.S. Department of Labor typically grants the waiver to states that apply, Gjede said.
At a time when the state’s business climate is hotly debated, the lawmakers say applying for the waiver would help employers here compete with those elsewhere. In nearby states like New York and Massachusetts that have no federal debt, they wrote, companies pay just $42 in federal unemployment taxes per worker, they said.
Waiving the add-on cost “amounts to significant overall savings for our businesses at a time when they could truly use it to help them stay afloat in this beleaguered economy,” the lawmakers said in their letter.
“If Connecticut wants to stem the tide of the persistent perception that we are a bad place to do business, then we must take this opportunity to provide relief to our already overburdened job creators,” the letter said.
In Connecticut, businesses pay a state unemployment tax in addition to the federal tax.
Businesses in the state could use the help of waiving the federal add-on, particularly in light of increased taxes included in the latest biennial budget, Gjede said.
“Businesses are hurting, especially after the past few days,” he said. “We were looking for some short-term relief.”