California unemployment payouts drop by half

http://economy.ocregister.com/2012/08/09/california-unemployment-payouts-drop-by-half/110796/

California sent out $1 billion in unemployment payments in June, a 50% drop from the peak two years ago, the Employment Development Department reports.

Part of the decline is due to fewer people being unemployed. By EDD’s count, there were 1.97 million Californians who were out of work this June compared to 2.26 million in June 2010 and 2.19 million last year.

However, the biggest reason for the drop in payouts this year is because California fell short in April of the federal eligibility requirements for the maximum 99 weeks of benefits.

Normally, unemployed workers are only eligible for 26 weeks of state aid. But because of the length and depth of the national economic downturn — the U.S. lost nearly 7 million jobs during the 18 months of the official recession — Congress extended unemployment benefits to 99 weeks.

Even though California has the third highest unemployment rate in the country, the state failed in April to meet the complex federal formula for state eligibility.

As a result, benefits in California were cut to 79 weeks in May and more than 90,000 long-term unemployed had their payments cut off.

With 709,000 of California’s unemployed in June out of work more than 52 weeks, thousands of other long-term unemployed are expected to exhaust their benefits each month.

California’s maximum benefits will be further cut to a maximum of 72 weeks in September as part of an overall effort by Congress to reduce the number of people getting aid.

Although the drop in total payouts is welcome news to the state, it does little to affect the projected $10.2 billion deficit in California’s unemployment insurance trust fund.

The state’s trust fund for unemployment payments ran out of money in January 2009, when claims outstripped payments by employers. California has been borrowing money from the federal government to make up the difference since then.

Last year, the state had to start paying back interest on the federal loan — a payment that totaled $303.5 million. Another $313 million in interest is due in September.  The state is making the payments from money borrowed from the California disability insurance trust fund,  which will have to be paid back within four years.

To begin paying off the $10 billion in principal due Uncle Sam, employers are being charged an additional $21 a year per worker this year in federal payroll taxes ($77 per worker total). The state legislative analyst estimates the increased payroll tax will cost California employers an extra $290 million this year and $580.9 million in 2013.

'Temporary' FUTA Surtax Expires after 35 Years

http://www.accountingtoday.com/news/Temporary-FUTA-Surtax-Expires-35-Years-59061-1.html
WASHINGTON, D.C. (JUNE 30, 2011)
BY MICHAEL COHN, ACCOUNTING TODAY

The Federal Unemployment Tax Act surtax is set to expire Thursday after House Republicans refused to extend the 35-year-old “temporary” unemployment surtax.

The surtax has been extended eight times since it was originally enacted in 1976. House Ways and Means Committee Chairman Dave Camp, R-Mich., refused to extend the tax beyond its current June 30, 2011 expiration date.

“The death of any tax on jobs—no matter how big or small—is a historic moment and one to be celebrated,” Camp said in a statement. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes—once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”

The original purpose of the “temporary” 0.2 percent surtax was to repay federal general revenues used to provide federal unemployment benefits paid in the wake of the 1973-75 recession. While the tax raised $27 billion (adjusted for inflation) and the general revenues were fully repaid by 1987, the 0.2 percent surtax remains on the books today. Since 1987, the tax has raised an additional $46 billion (adjusted for inflation) above and beyond what was needed at the inception of the tax in 1976.

The expiration of the surtax will reduce federal unemployment taxes by $1.4 billion per year, or about $14 per employee per year. That relief slightly offsets the effect of much larger state unemployment tax hikes imposed in recent years to pay for record unemployment benefit spending. Since unemployment benefits are not directly linked to the “temporary” federal tax, its expiration will not affect current or future unemployment benefit receipts.

Without the 0.2 percent surtax, the 6.2 percent FUTA tax rate will fall to 6.0 percent, according to CCH. It was last extended in 2009 as part of the Worker, Homeownership and Business Assistance Act.

Camp's office provided a timeline of the successive extensions of the surtax.

For more, read http://thehill.com/blogs/on-the-money/domestic-taxes/169335-temporary-unemployment-tax-to-expire--after-35-years

Obama Budget Proposes Broader Unemployment Taxes

http://online.wsj.com/article/SB10001424052748703507804576130890724243616.htm
By JONATHAN WEISMAN And DAMIAN PALETTA

WASHINGTON—President Barack Obama's budget proposal is expected to give states a way to collect more payroll taxes from businesses, in an effort to replenish the unemployment-insurance program. The plan could cause controversy at a time when the administration is seeking to mend fences with corporate America.

The proposal would aim to restock strained state unemployment-insurance trust funds by raising the amount of wages on which companies must pay unemployment taxes to $15,000, more than double the $7,000 in place since 1983.

The plan, which would take effect in 2014, could increase payroll taxes by as much as $100 billion over a decade, according to a person involved in its construction.

By proposing to enlarge the pool of wages subject to unemployment taxes, the White House appears to be offering states a more politically palatable way to raise revenues than to boost tax rates. States could keep the tax rates they have, or even lower them somewhat, and still raise considerably more revenue than they are raising now.

The unemployment insurance program is a joint federal-state program. The federal unemployment insurance tax rate of 6.2% on the new, larger base would be reduced, so that the U.S. would be taking in no more revenue than it does under the current system, a person familiar with the plan said.

To avoid hitting businesses with a tax increase during the economic recovery, the proposal would delay the new rules until 2014. The plan is expected to be included in Mr. Obama's budget proposal for fiscal 2012, to be released Monday.

Any proposal would need congressional approval.

State governments have had to borrow heavily from the federal government to cover the jobless benefits they provide. States are responsible for the first 26 weeks of benefits, and many have seen their reserve funds wiped out.

More than 40 states raised their unemployment-insurance payroll taxes last year to boost revenues.

The proposal comes as the White House is trying to improve relations with business groups while also pushing them for financial help to shore up the unemployment insurance system, drained by prolonged high joblessness.

Republican aides on Capitol Hill reacted warily. Increasing levies on businesses in the next few years could hit a wall of opposition among Republicans, said one senior G.O.P. tax aide in the Senate. Mr. Obama delivered a speech on Monday to the U.S. Chamber of Commerce, trying to repair frayed relations with business and offering areas of possible cooperation.

Mr. Obama has promised business an effort to simplify the corporate tax code while lowering the corporate tax rate. Pushing for higher unemployment taxes could reignite tensions.
—Sara Murray contributed to this article.