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INDIANAPOLIS – A House Democrat unveiled a proposal for fixing Indiana’s unemployment insurance system Monday that would triple taxes on employers to fund unemployment claims.
“The type of tax increase this bill calls for is going to cause additional terminations of employment,” said George Raymond, lobbyist for the Indiana Chamber of Commerce. “That’s a tremendous burden.”
Indiana’s unemployment trust fund has had a structural imbalance since 2001 and ran out of money last year – forcing the state to borrow at least $725 million from the federal government to pay unemployment.
The Democratic-controlled House failed to pass a bill addressing the issue during the first half of the session. Then, the Republican-led Senate passed a plan that raised about $870 million in new annual revenue for the fund through both direct tax increases as well as benefit and eligibility changes.
The Senate version would permanently increase business taxes $328 million annually starting in 2010.
House Bill 1379 is now in conference committee, where conferees from all four legislative caucuses are trying to negotiate a compromise.
Rep. David Niezgodski, D-South Bend, presented a proposed conference committee report Monday that included more than $1 billion in new taxes on employers.
The majority would come from increasing the taxable wage base and tax rates for businesses.
Currently, an employer pays only on the first $7,000 of an employee’s salary, but the new proposal would raise that to $14,000 immediately, with it dropping to $9,000 when the federal government is paid back and the fund balance is at least $400 million.
The plan also would adjust the rate structure for businesses. Currently, a business pays a tax rate ranging between 1.1 percent and 5.6 percent on the first $7,000, depending on its use of the system. That means a minimum annual contribution per employee is $77 and the maximum is $392.
Under the Democratic plan unveiled Monday, the tax rates would range from 1.8 percent to 10.2 percent, and the contribution would range from $252 to $1,498.
These changes would take effect in 2010.
But the proposal also includes a tax increase for 2009 through a surcharge to pay back the federal government. It amounts to $75 million a year and is meant to show the federal government Indiana is making a good-faith effort to address its problems.
Niezgodski said additional modifications to the system could save an additional $400 million. Some of these changes include expanding the definition of gross misconduct by employees and requiring some high-use employers to eventually start reimbursing the fund 100 percent for unemployment claims.
Overall, the plan would balance the fund in 2010 and pay back the loans by 2013.
It also would not cut benefits as Republicans suggested or make changes to seasonal worker status.
“This is going to impact all of our lives,” Niezgodski said. “I don’t want to second-guess. I want to get it right the first time.”
Sen. Dennis Kruse, R-Auburn – conferee for the Senate Republicans – complimented the Democrats for putting out a plan of their own and said the sides now have something to negotiate.
