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Time for a break: Legislature could consider unemployment insurance tax cut

Time for a break: Legislature could consider unemployment insurance tax cut

Idaho Freedom Foundation staff
January 6, 2017

Idaho businesses can expect Gov. Butch Otter’s support for a reduction in the taxes collected for the state’s robust $675 million unemployment insurance trust fund.

Otter is currently reviewing several options that would provide tax relief while maintaining the integrity of the fund used to pay benefits to out-of-work Idahoans.

Ken Edmunds, director of the Idaho Department of Labor, told Idaho Reporter, the governor may reveal Monday which approach he intends to take during his state of the state address, which kicks off the legislative session.

“We’re optimistic the governor will take one of the options we’ve presented to him,” Edmunds said. “He is looking for ways of reducing taxes while making sure the unemployment insurance fund remains solvent. We have one of the strongest trust funds in the nation.”

On Thursday the agency’s research chief, Bob Uhlenkott, said, the Department of Labor is preparing a report that explains why the state has chosen to maintain one of the largest unemployment trust funds in the country for a state of its population, median income and unemployment rate.

The department has taken criticism from the Associated Taxpayers of Idaho and the Washington, D.C.-based Tax Foundation for setting one of the highest wage bases from which the unemployment tax on businesses kicks in.

While Idaho consistently ranks in the top 20 best in the Foundation’s annual tax climate survey, the ranking is dragged down by its unemployment tax burden, the fifth worst in the country.

Jared Walczak, one of the authors of the Tax Foundation’s annual business tax climate reports, said Thursday that setting a high wage base, even as the unemployment tax rate has come down for the past two years, shows Idaho considers its large reserve a priority.

Taxing business at a higher rate than other states is a balancing act between preparedness for a recession and forgoing the economic boost a lower rate might offer, Walczak said.

He noted, too heavy a tax burden and businesses may be less inclined to hire new employees or offer greater incentive to lay people off.

Walczak added, given the current economic climate and Idaho’s prudence with its unemployment insurance trust fund, Otter might be in a good position to provide businesses with tax relief without weakening the fund.

The current policy on the unemployment fund has been dictated largely by its collapse during the Great Recession of 2009. While paying out more than $600 million in unemployment benefits, Idaho exhausted all federal and state reserves on hand and issued $205 million in bonds to pay for the funds the state borrowed from the U.S. Treasury.

Things were far worse nationally, when the cumulative debt for unemployment benefits hit $47 billion by 2011. Three years later, in 2014, according to the Pew Charitable Trusts, 16 states still owed the federal government more than $21 billion.

As of 2016, California still owes $6.7 billion; Michigan, $2.9 billion; Pennsylvania, $2.8 billion; and Texas, $2.6 billion.

“It was a little painful,” Edmunds said of the pressure on Idaho businesses. “It was really like a double hit for businesses, making those higher unemployment payments and being taxed at the same time to pay off the borrowing.”

Idaho returned its trust fund to solvency relatively quickly, and is routinely counted among the handful of states currently prepared to withstand another sizable recession.

The state maintains a trust fund comparable in size to those in Hawaii, Maine, Nebraska and New Hampshire, states closest to Idaho in population and unemployment rate, according to a 2016 U.S. Department of Labor report on trust fund solvency.

Of those comparable states, only Nebraska ranked higher in solvency than Idaho, which came in at 12. (Please see pg. 62 of the report for the solvency chart.)

Otter has no intention of risking trust fund solvency, Edmunds said.

“Not even we know what he’s thinking about the options we’ve given him,” Edmunds noted, “but I’m comfortable saying he would really like to decrease the tax burden on businesses.”

Idaho Freedom Foundation
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