Businesses’ Unemployment Tax Going Down

First, the good news: Wisconsin businesses that are part of the state Unemployment Insurance (UI) system will pay about $214 million less in taxes to support jobless benefits in calendar 2016 than they are paying this year – a 20 percent tax cut.

Now, the less-than-good news: According to the state Department of Workforce Development (DWD), “The UI Trust Fund, while positive over this period, is not expected to grow fast enough to prevent substantial borrowing in the case of an economic downturn.”

You be the judge: Is it wise to continue the boom-or-bust cycles that have dominated the UI Trust Fund for the last several years? Would it be wiser to let the fund accumulate the $1.6 billion balance that professionals say is needed to avoid going into debt and avoid borrowing from the federal government and raising taxes to repay what we borrow, in the next recession?

For now, Republican leaders in the Capitol are satisfied to let the boom-or-bust cycles roll on, especially since businesses will pay 20 percent less in UI taxes next year. But, for anyone scoring at home, the swing in UI Trust Fund balances has been staggering – $3.1 billion over a 10-year period, according a summary from the Legislative Fiscal Bureau (LFB).

LFB’s numbers: The UI Trust Fund had a $1.8 billion surplus in 2000, a $1.5 billion surplus in 2001, a $1.3 billion deficit in 2010, a $1.2 billion deficit in 2011, and a $515 million surplus on June 30 this year. Under Republican Gov. Tommy Thompson (1987-2001), balances in UI Trust Fund ranged from $397 million (1987) to $1.8 billion (2000) Under Dem Gov. Jim Doyle (2003-2010): Balances ranged from $931 million (2003) to -$1.3 billion (2010, during the Great Recession).

Because the UI System is a payroll tax, the wild swings in the fund’s balance – and whether UI taxes paid by businesses go up or down – largely mirror the hiring/layoff cycles of Wisconsin businesses.

Republicans also changed state law to require a one-week waiting period before benefits start and cracked down on fraud – two changes that also saved the Trust Fund money. The one-week waiting period saved the UI Fund about $48 million a year, according to DWD officials who administer it.

Wisconsin’s maximum unemployment benefit is $370 per week, which can be collected for up to 26 weeks. And with the economy doing well, fewer workers will need to claim it.

“With the largest one-month gain in private-sector jobs since 1992, Wisconsin employers are creating more opportunities for thousands of current and new workers to support themselves and their families,” DWD Secretary Reggie Newson said in a statement on the recent U.S. Bureau of Labor Statistics report showing a gain of 15,100 jobs in Wisconsin in October.

DWD officials estimate that employers will pay $1.03 billion this year into the UI Trust Fund, and as noted, that will decline by $214 million to just $816 million next year. And in 2017, according to preliminary estimates, that will drop even further: employers may pay $753 million into the fund.

One way to think of the $214-million drop in UI taxes paid by employers is this: It equals about 21 percent of the $1 billion all Wisconsin companies paid in income taxes last year.

But Jason Culotta, director of tax and transportation policy for the state chamber of commerce, Wisconsin Manufacturers & Commerce, rejects that comparison

“Corporate income tax collections are only those from companies organized as ‘C’ corporations, and a few limited liability corporations (LLCs),” Culotta explains. “Most businesses pay income tax at the personal level as ‘pass-through entities’ where the profit (and tax liability) flow to the LLC, shareholders of an ‘S’ corporation, or partners in a partnership,” Culotta adds.

“The reduction in the amount of tax paid by an employer for UI taxes has no bearing on the corporate or personal income tax paid by a business. They are distinct from one another, just as when gasoline is below $2 per gallon – compared to $4 per gallon – there is a benefit to the family budget.”

Comparing corporate income taxes and UI taxes is “apples and oranges,” Culotta says. “UI tax is handled by human resources folks, income tax by CPAs.”

Republican Gov. Scott Walker and GOP legislators have cut taxes over the last five years. But their list doesn’t include next year’s $214-million drop in UI taxes paid by businesses. Of course, if the economy changes in the coming years, that tax could rise again.

Steven Walters is a senior producer with the nonprofit public affairs channel WisconsinEye. Contact him at stevenscwalters@gmail.com