President Obama’s proposed FY 2017 budget would impose increases in state and federal unemployment taxes estimated by the US Treasury to total $63 billion over the next ten years and make the increased tax base permanent and indexed.
Building on the FY 2016 proposal, the budget includes an increase in the FUTA tax by reinstating the surtax that was not extended as of June 30, 2011. The surtax would be effective for wages paid after December 31, 2016. The surtax reinstatement is projected to cost employers $16.4 billion over the ten years ending 2026.
Adding to this increase the proposal would increase the FUTA taxable wage base effective beginning in 2018 from $7,000 to $40,000 and index the wage base to growth with increases in the annual wage. The proposal adjusts the federal FUTA rate applied to the increased FUTA wage base, however, the net effect is to permanently increase FUTA tax burden and to place states with tax bases below $40,000 in the position of having to increase their wage bases and build in the automatic increases. The projected effect of the proposal is to increase employer tax burden by $46.3 billion over the ten years ending 2026 and to make the increased taxes permanent.
In addition, the proposal would put in place new federal requirements imposed on states dictating amounts needed in their state UI trust funds and impose a minimum requirement on State employer tax rates equivalent to roughly $70 per employee beginning in 2018.
Lastly, the proposal would change the FUTA credit reduction rules. Instead of incurring a reduction in the credit rate after failing to repay outstanding loans for two years, States would be assessed a reduction if they had a balance in their state unemployment benefit accounts of less than 0.5 times the Average High Cost Multiple (AHCM) as computed by the US Department of Labor for two consecutive years. The reduction would be assessed each year until the minimum solvency standard of 0.5 AHCM is reached. The proposal would be effective as of the date of enactment. As of the third quarter of 2015 a majority of states would not have met the new federal requirement.
UWC opposes increases in the FUTA tax and opposes federally mandated financing requirements that impact states and employers. The Federal/State Unemployment Insurance system places responsibility with states to address state unemployment benefit account solvency. The increased taxes proposed greatly exceed any needs for federal and state administrative funding and additional revenue generated by the proposal is being used to artificially offset federal spending unrelated to unemployment insurance.
We are reviewing the wage insurance, benefit expansion, integrity and reemployment proposals that were also included in the President’s budget.