The rationale behind Texas Governor Rick Perry's refusal to accept $555 million in federal unemployment aid is bassackward.
By Eddie Griffin
Monday, March 16, 2009
Texas Governor Rick Perry refuses $555 million in federal stimulus funds to alleviate the impact of massive unemployment in the state. The reason given is that it obligates the state to unemployment claims in the future that would force Texas to raise taxes on employers.
What is obscured is the fact that State Unemployment Insurance Tax (SUITA) rates are going up anyway for employers who have laid-off workers, with or without federal assistance.
When a new company in Texas starts a business and hires employees, they pay the “inexperience” SUITA tax rate. As the business grows and employment stabilizes, they pay the “preferred rate”.
Unemployment claims are supposed to be paid out of SUITA. Therefore, the state of Texas is not liable to pay unemployment claims, unless SUITA is insolvent by virtue of all companies in Texas going out of business, or it is under-funded by virtue of a “too low” SUITA tax rate.
The SUITA employment tax favors the companies with stable employment. When companies lay workers off, their SUITA tax rate automatically goes up.
For example, our engineering firm started out paying something like 2.8% on gross wages paid. The more wages paid usually meant more profits for the company and a decrease in SUITA tax rate. Within five years, our company was paying one-tenth or 0.28% rate.
There is an enormous gap between “inexperience” rate and “preferred” rate.
What Governor Perry fails to see is that many companies that once employed a stable workforce now have a large pool of unemployed workers. By right and by law, the SUITA tax rate, for them, is supposed to rise, in order to replenish unemployment insurance funds being depleted by displaced workers.
Here is the Mathematical Miscalculations. How much will the state raise SUITA on the big companies in Texas that suffered massive lay-offs?
The governor cannot have his cake and eat it too. Whether he protects the business community or not against future unemployment claims, he forgets that there is an immediate “liability” created by recent lay-offs that must be covered by the State Unemployment Insurance. This is the bullet that the business community must bite now, with or without assistance; otherwise, the governor will find himself shifting the lion share of employment insurance liability onto the backs of Small Business, in an effort to spare Big Business from having to revert to the “inexperience” rate.
The Obama administration offered $555 million in order to cushion that burden, in exchange for a few extra weeks for a displaced worker to get back into the workforce. In theory, a worker should be able to claim unemployment benefits until they are re-trained with new skills and again absorbed into the workforce. That is the ideal.