AIM for Good Business Issue Articles
Ray McCarty, AIM President, 12/23/2010
Did you know your business is facing an automatic tax increase of $21 per employee if the legislature and governor’s office take no action in the next year That’s $21 per employee, whether your business has laid off many workers that are receiving unemployment payments or not!
The tax increase is actually a reduction in the amount of Federal Unemployment Tax Act (FUTA) tax credit. The FUTA credit will be reduced if Missouri employers still owe money to the Federal Unemployment Trust Fund on November 10, 2011.
Typically, Missouri employers pay state unemployment taxes and these tax collections are used to pay unemployment benefits. But when the state experienced unusually high unemployment over the last two years, Missouri did not have enough money in the state fund to pay claims, so the federal government loaned us the amount needed to pay unemployment claims. Some of the amount that has been paid to unemployment recipients was “paid for” with the federal stimulus money, but the amount used to pay regular unemployment claims are the responsibility of Missouri employers. Right now, Missouri employers owe more than $722 million to the Federal Unemployment Trust Fund for money that was used to pay unemployment claims during this recession. Many other states (31 at last count) owe the federal government more than $40 billion!
Congress has authorized these federal loans to be interest free through the end of this year, but the entire amount must be paid back by November 10, 2011 to avoid the automatic tax increase (through the loss of FUTA tax credit). Interestingly, this tax increase will be paid equally by all Missouri employers, regardless of your unemployment experience rating. The amount is $21 per employee, so an employer with 1000 employees will pay an additional $21,000 in unemployment tax next year unless we resolve this problem. If the amount remains unpaid next year, that automatic tax increase doubles ($42 per employee), then triples ($63 per employee) the following year. After that, the tax increase grows much more rapidly.
So how do we address the problem? Associated Industries of Missouri (AIM) and other business groups were successful in passing a law that allows the state to issue bonds to repay this debt. The bonds are issued by the state, but they are not a liability of the state – all principal and interest must be paid by Missouri employers. The bonds are repaid through an automatic surcharge on your unemployment tax. But unlike the FUTA tax credit loss, this surcharge is calculated based on your experience rating, so those that use the unemployment system more will pay more than those that do not. Other states have used this method to successfully repay the federal loans. In fact, Texas issued $1.2 billion in bonds last month to repay their federal loans at about half the interest rate charged by the federal government and avoided the loss of FUTA tax credits.
Why do the legislature and the Governor need to take action if we already have authority to issue the bonds? We need to extend the length of time within which these bonds must be repaid to lower the principal and interest payments to a level that will not violate the Hancock limitation in the Missouri Constitution. If we are unable to lengthen the payback period for the bonds, the principal and interest payments would exceed the amount allowed under our Constitution, meaning the bonds could not be issued. Both the legislature and the Governor have a role in solving this problem. The legislature needs to pass a bill that will extend the length of the bond repayment period. The Governor needs to sign the legislation, and also needs to begin the process of actually issuing the bonds.
Associated Industries of Missouri will be working closely with leadership in the House and Senate and with Governor Nixon to make sure Missouri employers are not faced with an automatic tax increase next year. We, through our national affiliate employer organization, the National Association of Manufacturers, will be asking Congress to give employers more time to repay these federal loans without interest or penalty, but we are not confident any extension will be granted. You can help by calling your legislators and the Governor’s office and let them know this is an issue you need addressed in this next legislative session. Let them know they are preventing a tax increase by taking action.
We will keep you posted of our progress on this issue throughout the legislative session. If you have any questions, please call our office at 573-634-2246 or email us at rmccarty@aimo.com.