Maine businesses face tax hike to keep unemployment flowing

Posted Nov. 21, 2010, at 7:05 p.m.

AUGUSTA, Maine — At the beginning of the new year, Maine employers will face a tax increase that will enable the state’s unemployment trust fund to pay unemployment benefits, the state’s principal safety net program.

“There will be an increase, up one level,” said Maine Department of Labor Commissioner Laura Fortman. She said the cost to employers will go from about $93 per worker per year to about $103 per worker per year. Overall, it will cost Maine employers about $14.5 million more in tax payments.

Fortman said Maine is in far better shape than many states, with 35 states already borrowing from the federal government because the state funds have been exhausted. That borrowing comes with interest and federal surtaxes on employers to make state funds return to solvency, she said.

“If we had to borrow, the tax increase would be a lot larger,” she said.

Fortman credited a compromise adopted during the administration of Gov. Angus King with making Maine’s trust fund among the most solid in the nation. She said a bipartisan group worked with business representatives and union leaders to craft the current system that assesses taxes on employers based on a complex formula that takes into account employer use of the system.

“We have been able to keep our fund solvent and pay benefits,” she said. “That’s better than many states.”

The formula for setting rates starts with the balance in the trust fund as of Sept. 30 each year. This year the balance was $290.6 million. But $210.3 million in state benefits will have been paid by the end of this year and that high level of use triggered the need for an increase in the taxes on employers that fund the system, Fortman said.

“There have also been considerable benefits paid for with federal funds,” Fortman said. In fact, more has been paid through the various emergency and extended benefit programs passed by Congress than paid under the state system. The Department of Labor estimates $213.6 million by year’s end.

Peter Gore, vice president of the Maine State Chamber of Commerce, said any increase in taxes will hurt employers, but he noted this year’s increase is significantly less than the $54 million hike that was imposed last January 1. He said employers expected another increase this year because the recession continues to hold down job growth.

“Is the business community happy the UI [unemployment insurance] tax rate went up? No,” he said. “Could we be a lot worse off? Yes.”

Gore said most employers believe the way to get the fund in good shape again is to get the economy growing again so the numbers of workers increase and more is paid into the unemployment insurance trust fund. He said he is hopeful that signs of an improving economy will soon translate into job growth.

“But we are better off than most states that are in debt to meet their unemployment obligations,” he said. “That is important, and we could have been in that position.”

David Clough, Maine director for the National Federation of Independent Businesses, said any tax increase on employers will hurt the state’s economic recovery, even if it is less than the 2010 tax hike.

“This takes money out of the pockets of business owners that could be used to create jobs,” he said. “The best way to replenish money in the unemployment fund is to replenish jobs that have been lost during the recession. We have lost over 30,000 jobs in Maine.”

Clough said even though he agrees the state would be in worse shape without the current unemployment insurance tax system, he believes lawmakers should try to avoid a tax increase as employers are trying to recover from the recession.

“Small businesses are concerned about going beyond the social welfare safety net, about efforts to expand the use of unemployment to something more than a safety net,” he said.

Clough said in recent years the Maine system has been expanded to include part-time workers and that brought an additional cost to the trust fund.

More than 10,000 Mainers a week are receiving regular unemployment benefits from the state trust fund, and an additional 15,000 a week are getting some type of additional federally funded benefit. The total payments from all of the unemployment insurance benefit programs are close to $7 million a week.

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