Businesses could be saved billions of dollars in higher taxes in the years to come – potentially freeing up money to spend on employees or invest in their operations – thanks to federal assistance to coronaviruses afflicted in the States.
Governors and lawmakers in more than half of the states plan to use at least a portion of their federal pandemic relief funds to replenish unemployment insurance trust funds that have been drained by a surge in claims. unemployment caused by business closures and restrictions, according to Associated Press review.
By tapping into federal aid, states could avoid automatic tax hikes that would otherwise be imposed on businesses to pay off federal loans that kept state unemployment systems afloat during the COVID-19 pandemic. This means that jobless public funds could recover much faster than they did after the Great Recession, when it took some states five to ten years to replenish their funds.
“For the first time in decades, states will be able to emerge from an economic contraction with well-funded unemployment benefit trust funds and be able to save for the next downturn, rather than focusing on paying back the last debt, ”said Jared Walczak, vice president of state projects at the Tax Foundation, a Washington, DC-based nonprofit.
Some worker advocates would prefer states to spend their pandemic funds in direct aid to those who suffered economically during the coronavirus outbreak.
“Using the money just to replenish an account doesn’t serve workers,” said Jenna Gerry, a lawyer with the National Employment Law Project, a New York-based group that advocates for low-wage workers and the unemployed.
But business groups say employees will ultimately benefit if their bosses don’t bear the tax burden of replenishing jobless public funds.
“It impacts all aspects of this employer’s ability to employ people, grow, pay salaries and benefits,” said Dan Mehan, president and CEO of the chamber of commerce. and Missouri Industry.
The federal government has provided several rounds of aid to states since the coronavirus pandemic began last year, culminating with $ 195 billion in flexible funds included in the US bailout package signed by President Joe Biden. US Treasury Department guidelines allow the money to be used to replenish unemployment trust funds to their pre-pandemic levels.
At least 29 states have already transferred or offered to use a total of more than $ 12 billion in federal coronavirus aid for their unemployment trust funds, according to an AP analysis. This ranges from a $ 25 million transfer in Wyoming to commitments of up to $ 1.5 billion in Georgia and Ohio.
Republican Gov. of Maryland, Larry Hogan, and Democratic Gov. of California, Gavin Newsom each announced budget plans this spring that would use $ 1.1 billion in federal COVID-19 funds to bolster their unemployment compensation accounts exhausted.
Hogan said the move would allow the state to “continue to help those who need it most” while providing “tax relief for struggling businesses.”
State unemployment benefits are funded by special federal and state taxes on employers. Each state sets its own tax rate and benefit payment amounts. When trust funds are low, states can get federal loans to continue paying unemployment benefits. Loans taken out in 2020 and still registered next January must be repaid by November 2022, otherwise the federal government will increase corporate taxes to recover the money.
Ten years ago, the Great Recession led to the insolvency of unemployment trust funds in 35 states that collectively accumulated more than $ 40 billion in debt to pay the unemployed. It took years for the states to pay that back.
A US Department of Labor report warned shortly before the start of the pandemic that 21 states still did not have sufficient reserves in their unemployment funds to deal with a potential recession. Most of these states have had to borrow from the federal government because layoffs linked to a pandemic had a major impact on state unemployment funds.
In the year following March 2020, the total amount of state trust funds fell by two-thirds while the median balance of public funds declined even more – from $ 1.1 billion to $ 250 million , according to an analysis of the AP.
But thanks in part to federal relief, fewer states borrowed to pay unemployment benefits than in the last recession. As of Tuesday, 18 states owed the federal government $ 52 billion in unemployment loans. California tops the list, with nearly $ 21 billion in unemployment debt, followed by over $ 9 billion for New York and almost $ 7 billion for Texas.
Missouri took five years to pay off more than $ 1 billion in unemployed federal loans after the recession that ended in 2009. But its unemployment fund avoided insolvency during the pandemic because Republican Gov. Mike Parson backed it up with $ 300 million in aid provided under a law signed by former President Donald Trump.
Parson’s office has come under pressure from the Missouri Chamber of Commerce and Industry.
“If we hadn’t done something like this, employers – small, medium and large who are trying to come back and come back strong – would have had to pay the price of increased charges to their unemployment insurance,” said Mehan, the CEO of the chamber.
Pennsylvania just made its last payment in January 2020 on $ 2.8 billion in bonds issued to repay the federal government unemployment compensation loans resulting from the Great Recession. A few months later, he had to start borrowing again because of the pandemic. The state now owes the federal government nearly $ 1.6 billion for unemployment loans.
Business representatives are urging the administration of Democratic Governor Tom Wolf and the Republican-led legislature to use federal coronavirus relief funds to restore the state’s unemployment fund. House Speaker Bryan Cutler said he was in favor of earmarking relief funds for existing spending before funding new programs.
“Lawmakers frequently talk about supporting their businesses and small businesses. This is a good opportunity to put action behind it, ”said Alex Halper, director of government affairs at the Pennsylvania Chamber of Commerce and Industry.
Worker advocacy groups have raised concerns that some states are investing coronavirus relief funds in their unemployment funds while ending an additional $ 300 weekly federal unemployment benefit.
Among the states that do is West Virginia, which has borrowed $ 185 million from the federal government to continue paying regular unemployment benefits. Republican Gov. Jim Justice has set aside about $ 600 million in federal pandemic relief funds for the state’s unemployment system.
This money could have been used to help people buy food, pay rent, find jobs or expand high-speed internet access, said Sean O’Leary, senior policy analyst at the West Virginia Center. on Budget and Policy nonprofit.
“There’s a lot we could have done with that money over the last year, and there’s still a lot we could do with it – $ 600 million is a lot of money for. sit down now, ”he said.
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