Unemployment Insurance Tax Stokes Complaints
Nearly 100,000 employers in Connecticut are about to get sticker shock as the state mails annual tax bills to pay interest on its $433 million federal loan for unemployment benefits for workers let go during the Great Recession.
The so-called special assessment being mailed Friday is expected to be the steepest in the United States this year and has prompted a new round of complaints about the high cost of doing business in Connecticut.
Wayne Rydzy, president of Pauway Corp., an aerospace and medical equipment manufacturer in Wallingford, is resigned to the tax, which will cost him more than $5,600 for his 35 employees.
"Here's another one. You send a check," he said. "There's no plan B. There's no appeal."
The once-a-year tax, in addition to quarterly payments by employers, is due Aug. 29.
Thirteen states and the Virgin Islands owe the federal government $14.33 billion for unemployment insurance funding borrowed to help millions of unemployed workers during the 2007-09 recession and the weak recovery that followed. California accounts for more than half, $7.92 billion, and Wisconsin owes the least, $3.9 million, according to the U.S. Department of Labor.
Bruce Berman, assistant director of accounts at the state Department of Labor, said Connecticut is making progress in reducing its debt to the federal government. It paid $150 million in June, whittling the debt down from a high of $810 million in 2009. Officials expect to eliminate the debt by 2016, he said.
For the roughly 99,000 employers liable for unemployment taxes, the tab will be 2.3 percent of the first $7,000 in pay for each employee, or $161 per worker. Doug Holmes, president of UWC-Strategic Services on Unemployment and Workers' Compensation, a research and trade group, said Connecticut's assessment is expected to the highest in the nation when federal labor officials set tax rates in November.
Employers in several states are expected to pay between 1.5 percent and 2.1 percent. But businesses in most states will likely pay 0.6 percent, or $42 for each employee, due to credits and a federal waiver.
Connecticut businesses are paying more because the state did not seek the waiver. Berman said refusing the waiver spikes payments now but will be less costly over time because interest costs will be lower.
"It was a tough call," he said.
The assessment, which has drawn fire in the past from businesses and Republicans in the legislature, is a bigger target in an election year.
The legislature's minority Republicans, who unsuccessfully tried to have the state put in $60 million toward the unemployment insurance interest to limit the impact on businesses, called the special assessment "yet another burden on Connecticut employers."
Senate Majority Leader Martin Looney said lawmakers reached a "more general consensus" to help businesses with economic development assistance.
Part of the problem for Connecticut is that it's a high-income state. The unemployment benefit rate is set by the legislature to reflect the average production wage. That puts the state's employers at a competitive disadvantage, Holmes said.