The Business Unemployment and Tax Vicious Cycle

I just read an article on The Indy Channel website about the new Jobless Bill recently passed in the Indiana legislature and signed by Gov. Mitch Daniels. In the new bill, businesses tax rate on their unemployment costs will increase, while the benefits received by the unemployed won’t be reduced at all.

The example shared in the article really highlights the issue in my mind:

Commonwealth Engineers on the south side is typical of how the impact will be felt. The company employs 56 people and, until last year, had rarely laid off anyone. But when eight employees were laid off, it put the company in a higher unemployment tax bracket.

The combination of that and the new higher rates will cause the company’s bill for unemployment insurance to rise from $20,000 a year to $35,000 this year and almost $40,000 next year.

The point that’s not made clear in the article is how ridiculous the unemployment system is already. I understand the need to help people out in a tight situation, but we can’t make it easier and more comfortable to just look for a job instead of taking a job that’s available, but pays less than they’re pulling in on their unemployment check.

The other thing that really irritates me is when people are working various jobs under the table AND still collecting their unemployment check, continuing to drain the unemployment funds that businesses have been paying into in both the best and the worst of times.

Read the article, "Business Leaders ‘Outraged’ Over Jobless Bill" and share your own thoughts in the comments.


  1. Thanks for these additional insights and reading. Continuing to look into the facts around this and learn more about the situation. Thanks for sharing.

  2. The rest of the stor says:

    You need to hear the rest of the story

    Indiana legislators entered this session facing a crisis in our state's unemployment insurance fund. For many years, premiums paid by businesses have failed to keep pace with benefits paid to jobless Hoosiers, even when unemployment rates were at historic lows. On top of this structural imbalance, experts estimated hundreds of millions of dollars annually in waste, fraud and abuse of the system only exacerbated the problem.

    Indiana's bankrupt fund is now borrowing more than $7 million every day from the federal government. While the $800 million loan balance from the federal government is temporarily interest-free, it is estimated Indiana's unemployment insurance borrowing may top $1 billion by year's end – almost as much as the state has in emergency reserve funds. Indiana lawmakers had to take decisive action to reform the system and restore its fiscal integrity.

    In response, the General Assembly approved – and now Gov. Mitch Daniels has signed – a bipartisan plan which puts the fund on a path to solvency, preserves worker benefits, addresses unfair premiums paid by tens of thousands of employers, gives employers new protections and appeal rights, and reforms the system to reduce waste, fraud and abuse.

    Our Indiana compromise struck between the more liberal-leaning, pro-labor House of Representatives and our more conservative, pro-business Indiana Senate balances almost dollar-for-dollar the needs of workers and concerns of businesses. This reform-minded compromise has earned the support of a variety of employers, labor and pro-business advocacy groups. The National Federation of Independent Businesses, which represents the vast majority of small businesses in Indiana, has strongly endorsed many of the provisions of the new UI bill for their balance and fairness to the small-business owners across the state. Similarly, the Indiana Restaurant Association noted that "Legislators listened to small business."

    Yet critics remain. And not surprisingly, many of the negative comments are being leveled by the same interest groups who years ago helped to carefully craft the system that is now bankrupt. Missing from their one-sided onslaught are these 15 facts critics apparently didn't want you to know about our efforts to make unemployment insurance work for all Hoosiers – small-business owners, industry leaders and their employees:

    1. Indiana Faced a Federal Government Takeover: Some opponents of the bill – many of whom are benefiting financially from the current UI system – wanted legislators to delay a comprehensive solution to its insolvency. But if state lawmakers did not act quickly and thoughtfully this session, Indiana faced a forced-fix by the Obama Administration. A Washington takeover would have resulted in premium increases of up to 800 percent on all Indiana businesses – even those who never tap the fund. What's more, federal control could have actually loosened further standards already in our Indiana system and provided no reforms to clean up waste, fraud and abuse.

    2. Small Businesses Were Unfairly Forced to Subsidize Big Businesses: For years, employees laid off or furloughed by some of the state's big businesses have been able to take advantage of the fund far in excess of what their employers ever paid in premiums, while Indiana's small businesses – whose owners would rather forego a paycheck themselves than lay off workers – footed the bill. Some businesses even factored in UI benefits in collective bargaining agreements, knowing that their planned annual furloughs would allow employees to draw more out of the UI fund in just one week than the company paid in premiums the entire year. These furloughs often lasted for several weeks, each and every year.

    3. Some Big Businesses Wanted "The Little Guy" to Bail Them Out: It wasn't enough to have their scheduled layoffs and massive furloughs subsidized by Indiana's small businesses, some big businesses this year demanded their unemployment claims be bailed out by the little guy – Hoosier workers. Some groups actually lobbied legislators during the worst national economic calamity since the Great Depression for a new tax on workers to help make up the fund's shortfall. Lawmakers on both sides of the aisle considered a worker tax unpalatable and pointed out that only one other state – Alaska – requires regular employee contributions to their unemployment insurance funds.

    4. $1.2 Billion House Price Tag Was Reduced 75 Percent by Senate: An alternative plan proposed by the Democrat-controlled House would have doubled premiums on tens of thousands of Hoosier employers, even though evidence showed these employers never used the fund. Not only would this plan have unfairly plundered the pockets of small, hometown Hoosier businesses, it would have resulted in a more than $1.2 billion annual tax increase on Indiana's business community and contained far fewer reforms to the system than the just-passed plan that big users of the fund are now disparaging.

    5. Reforms Save Employers Dollar-For-Dollar: Indiana's solution, HEA 1379, does not put the responsibility of replenishing the fund solely on the shoulders of businesses, but balances it nearly dollar-for-dollar with $302 million in cost-saving reforms to the system and with about $315 million in new premiums for 2010. In their April 20, 2009, Legislative Agenda Update, the Indiana Chamber of Commerce called many of these reforms "necessary changes," and noted they supported the plan in part, but opposed it in part because it did not contain the previously mentioned worker tax. More recently, they said it's "no solution at all." These were inconsistent and inaccurate characterizations of the plan.

    6. Real Job Searches Will Be Required For The First Time: Common-sense, cost-saving reforms to the system in the new plan include requiring Hoosiers out of work to actually "apply" for jobs, not just "look" for jobs as current law provides – a change that will save an estimated $12 million annually. Further, workers will be penalized if they refuse to accept suitable work. To help out-of-work Hoosiers retool their skill sets, HEA 1379 also creates the Hoosier Workers Training Program, allowing workers to take advantage of state-offered retraining programs.

    7. Worker Misconduct Will Be Intolerable, Actionable: Workers fired and found guilty of poor attendance, working under the influence of alcohol or stealing from their employers will no longer be able to claim benefits, eliminating an estimated $20 million in waste each year.

    8. Compliance Center Will Police $160 Million in Fraudulent Claims: A recent federal audit found that some workers were defrauding Indiana's UI system at a rate of nearly five times the national average and further exacerbating the fund's bleeding by up to $160 million each year. New cost-cutting reforms include the creation of a compliance center tasked with closely monitoring, preventing and stopping fraudulent claims.

    9. Indiana Will Discard Deck Stacked Against Employers: Reforms to the claims adjudication process would give employers the best, fairest shake at the table in disputing errant unemployment claims by former employees. Historically, these decisions have been so skewed in workers' favor, many employers -especially those already paying the highest premiums – found little point to dispute even the most fraudulent of claims. New training and review of administrative law judges will allow Indiana to discard the deck previously stacked against employers wanting to fight errant claims.

    10. Plan Considers Recession, Slows Premium Schedule: Just as lawmakers recognized that a new tax on workers was indefensible given the national economic climate, they also recognized the need to slowly introduce any premium increases. Consequently, Senate Republicans kept in mind the recession employers are facing and spread the new rates over almost three years – saving businesses about $100 million in 2010 premiums. What's more, there will be no premium increases in 2009.

    11. Surcharges Were Avoided, Lower Wage Base Was Used: Senate Republicans fought for and were able to win key concessions for all of Indiana's employers, including removing an additional $50-million 10-percent flat surcharge on all businesses in 2009 and lowering the taxable wage base from a House-proposed $10,000 to $9,500 – considerably lower than the national average of $14,418.

    12. Unemployment Insurance Should, Will Work Like Other Insurance: Indiana's Unemployment Insurance system is just that – an insurance system. Just as high-risk drivers pay higher premiums for their auto insurance than motorists who rarely have accidents, businesses with histories of large layoffs should – and now will – rightfully pay higher premiums than those that never lay off workers or make claims.

    13. 45,000 Employers Will See Premium Decreases: Because Indiana's unemployment insurance will be operated in the future like other insurance programs, close to 45,000 Hoosier employers who have never tapped the fund may actually see slight decreases in premiums.

    14. New Reduced-Rate Option Raises Funds, Promotes Steady Jobs: Indiana's just-passed bipartisan UI reform plan allows employers to take advantage of a first-ever buy-down option to lower their premiums. The plan gives employers a 2.5 for 1 bonus credit for every dollar they pay in to reduce their debit balance, potentially generating between $75 million to $100 million in new revenues to jump-start the fund's solvency. It will also give employers paying top premiums due to high claims the motivation to avoid future layoffs and provide Hoosiers a more predictable job market.

    15. Users' and Abusers' Premiums Stay Competitive in Midwest: Those who use the fund more – and consequently oppose some of our reforms – will see increases, but only to levels that will maintain Indiana's economic competitiveness with other states. Even businesses that draw down Indiana's UI fund balance the most by laying off the most workers will still pay lower premiums than the Midwest average. In neighboring states with bankrupt jobless funds, very few businesses – if any – will see similar competitive premium adjustments as businesses in Indiana will under the new plan. Already, many of these states have merely hiked up rates on businesses without initiating the sweeping reforms contained in Indiana's plan.

    Despite critics' claims that HEA 1379 "doesn't solve the problem," conservative estimates anticipate the plan will structurally balance the fund by 2012, begin building a surplus while repaying the federal government shortly thereafter and creating new on-going oversight to prevent future problems with Indiana's unemployment insurance fund.

    Gov. Mitch Daniels has repeatedly stated to Senate Republican leadership that the administration's research revealed the unemployment insurance fix just passed will have no negative impact upon Indiana's high national pro-business ranking. We are proud of the partnership we have forged with Gov. Daniels to achieve the supportive business environment that our state enjoys today.

    Senate leadership wanted you to know another side of the story on Indiana's new unemployment insurance law. We remain steadfastly committed to the principles of less government, low state taxes and a positive climate for entrepreneurship, growth and job creation.

    Source: Senate Majority Caucus