Opinion Columns & Blogs

Change in unemployment tax makes sense

You've probably heard a lot of talk this legislative session about the Kansas Unemployment Insurance Trust Fund. The trust fund is sort of like a bank account that all businesses pay into. Then, when Kansans are laid off, the unemployment benefit checks are written from this account.

Under normal circumstances, there is always enough money in the account. But in this recession, when unemployment has reached unprecedented numbers, the fund has been at risk of running out. That is what is happening here in Kansas and across the country.

Last year, Kansas paid out $766 million in state unemployment benefits. That's $766 million that otherwise would not have gone into the state's economy at a very critical time. It is crucial that these resources be maintained for the sake of Kansas families and our Kansas economy.

But Kansas workers aren't the only ones hurting. Kansas employers finance the trust fund through a tax on the first $8,000 in wages they pay every employee. Kansas law calculates each employer's tax rate based on how long the employer has been in business, how much the employer has paid into the fund compared with the benefits paid out to former employees, and the balance in the fund.

Our state has traditionally had a very healthy trust fund, so much so that in 2007 the Legislature passed Senate Bill 83, which provided for automatic reductions in the employer tax rate when the balance hit certain levels. Those reductions were in place from 2007 through 2009, saving employers around $286 million.

But when unemployment surged in 2009, our trust fund balance declined rapidly. The tax reductions ended in 2010, and tax rates returned to standard statutory levels. Because of the drop in the trust fund balance, standard tax rates also increased in order to boost total revenue into the fund.

By law, employers that have put more into the fund than they've taken out in benefits pay no more than 5.4 percent. Those that have contributed less than they've used in benefits can pay up to 7.4 percent. If the tax formula pushes employers past their limit, they still pay only their maximum. When that happens, taxes go up for employers that haven't reached their maximum limit until the revenues are sufficient to meet the tax collections required by law. This process is known as rate compression.

These changes resulted in significantly higher tax rates for some employers. Employers appeared before the Legislature to say they would be forced to lay off additional employees to meet the increased taxes. Clearly, that's not in the best interests of anyone.

Some argued that we should reduce benefits to unemployed Kansans so we can reduce the funds needed to restore the trust fund. The governor has said that benefit reductions are the wrong way to go. I agree.

The maximum weekly benefit amount in Kansas is $436 — an amount that puts us 23rd out of 53 states and territories in terms of our maximum weekly benefit amount. What's more, only six other states in the nation have a higher threshold than Kansas for base-period wages to qualify for unemployment benefits.

Still, a method to temporarily ease the tax burden on employers, while still building the trust fund, was needed. House Bill 2676 is a reasonable approach to accomplish this g oal.

The bill, which has now passed the House and the Senate, allows us to discontinue the rate-compression process in 2010 and 2011. This will provide $43 million in tax relief to about 31,000 Kansas employers this year.

This action makes sense on a temporary basis to ensure the ability of Kansas businesses to better absorb the contribution increases brought on by the recession.