President Trump’s FY 2019 Budget would mandate $22 billion UI Tax/Solvency Increases and Create a New National Paid Parental Leave Program Through the UI system
UI Tax Increase and Federal Solvency Requirement
The President’s FY 2019 Budget proposes to mandate that employers with employment in states with low balances in their state UI trust fund accounts pay higher UI related taxes. The total tax increase/solvency measures over the ten year period ending 2028 are projected to generate an additional $22 Billion. The increases in FUTA taxes would come as a function of reductions in the offsets for state UI tax payments against FUTA for employers in those states. The general policy rational for the tax increase is that some state unemployment trust funds have balances below the levels recommended to be solvent by US DOL. See the link to the Budget Summary Document at https://www.whitehouse.gov/wp-content/uploads/2018/02/budget-fy2019.pdf . Pages 76,77,119, 121, 123, 133, 138, 140
This imposes higher taxes on employers doing business in states with lower trust fund balances even though the individual employers in these states may have Unemployment Insurance account balances that are significantly higher than necessary to assure that they have funds available to cover charges associated with unemployment insurance benefits.
This proposal appears not to recognize that a number of states have access to alternative financing to assure that federal loans for unemployment compensation payments are repaid. Alternative financing may be available to avoid federal loans and/or repay federal loans without adding increased balances in the federal unemployment compensation accounts.
The impact of the proposal will be largely on employers with operations in states with lower trust fund balances who would be required to pay higher FUTA taxes, but it also could result in higher state UI taxes to reach mandated solvency levels and/or cuts in unemployment compensation benefits to reach solvency targets.
UWC has maintained a policy position for many years that states should be responsible for addressing the solvency of state unemployment trust funds. We have encouraged improved solvency so as to avoid having to raise taxes and borrow with interest during recessionary periods. UWC has opposed new federally mandated UI taxes.
New Paid Parental Leave
The FY 2019 budget proposes to provide six weeks of paid family leave to new mothers and fathers, including adoptive parents, so all families can afford to take time to recover from childbirth and bond with a new child. The budget states that “Using the UI system as a base, the proposal would allow States to establish paid parental leave programs in a way that is most appropriate for their workplace and economy. “
The budget assumes that such a program would cost approximately $19 billion over 10 years and would be offset by increases in unemployment taxes/solvency provisions ($11 billion), improved integrity ($1.8 Billion) and RES/REA services ($3.3 Billion). See pages 78, 118, 133, 140, and 141.
UWC has taken the position that the UI system is not the appropriate vehicle for administration of a new national paid leave program. A number of states have programs that are financed outside of the UI trust fund, and the recent enactment of legislation in the Tax Cuts and Jobs Act of 2017provides tax credits for employers who choose to provide paid family leave. There are also legislative proposals to permit employers to provide for paid leave through ERISA plans.
We are conferring with US DOL and congressional staff to raise concerns about the tax increase and the details of the proposal in the FY 2019 budget.