PENDING FEDERAL UC TAX INCREASE
The FEDERAL
Unemployment Tax rate will rise 3/10ths of 1 percent for New York employers in
January 2005.
Since the Federal UC
tax base is only $7,000 (the New York State tax base is $8,500), the
0.3% Federal tax rate increase will cost employers $21 per
employee (or less if an employee's compensation did not reach
$7,000 in 2004).
The Federal tax
increase is mandated by Federal law to repay the monies advanced by the
Federal government to New York's Unemployment Compensation Trust
Fund during 2002 through2004. The monies were automatically
advanced by the Federal government because New York's UC benefit payout outpaced
New York's (state) UC tax payments since the onset of the 2001 economic
downturn.
Since there are no
monies in New York's UC Trust Fund for the State to payback the Federal
government [the outstanding debt in mid-September was over $425 million and will
grow to some $1 billion by year's end], there are two
alternatives.
ALTERNATIVE
A
New York employers
(as a group, not individually) would be excused from the January 2005 FEDERAL
tax increase IF the debt were repaid in full by November 10, 2004 plus an
extra amount to cover expected additional advances from November 10 through
December 31. This would necessitate a new NEW YORK STATE UC
tax increase estimated at some $150 per employee that would have to be levied
and paid by November 10, 2004.
ALTERNATIVE
B
Another alternative
could be floating a bond whose principal, interest, commission, and costs would
be levied on and borne by New York employers through a new NEW YORK STATE
UC tax. The amount of this new NEW YORK STATE UC tax would vary
depending upon the payback period of the bonds. For example, a
three-year payback period would require New York employers to pay a new NEW YORK
STATE UC tax of some $60 in 2004, $60 in 2005, and $60 in
2006.
Both of
these alternatives would require aNEW and HIGHER STATE UC tax
paid SOONER than the FEDERAL tax increase of $21 per employee in place for
January 2005. (The FEDERAL tax increase would rise an
additional $21 per employee in January 2006 and January 2007 to $42 and $63,
respectively, depending on the progress of an economic
recovery.)
October 26, 2004
