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Amortizing $7 B in COVID UI Claims Simply Not Good Enough

Amortizing $7 B in COVID UI Claims Simply Not Good Enough
June 6, 2021 -- by Jon Hurst, RAM President

Beacon Hill recently passed legislation which was billed as a fix for the $7 billion unemployment insurance crisis.  It was the second such bill passed in two months.  Yet employers are still waiting for government to step up with shared responsibility by making a fair down payment on the unprecedented employer tax increase for COVID layoffs triggered by public policy.

The “fixes” to the UI system to date has been all about amortizing over 20 years the incredible $7 billion of COVID claims paid over 17 months.  Through state bonding, the $7B (plus interest) is being spread out, preventing as much as 1600% immediate 2021 tax increases; but current and future employers are still being handed the entire bill of the claims and the interest charges.  To put that $7B in perspective, it is equivalent to 5 years’ worth of normal Massachusetts UI taxes and claims—and those typical annual UI taxes are already the highest in the US.  And of course, over the next 20 years, new, typical UI claims will also continue, ensuring growing payroll tax liabilities for decades.
The $7 B delayed tax increase will most certainly suppress future wage and job growth in the Commonwealth.  And by mortgaging the entire huge debt, Beacon Hill has yet to deliver what most states have already done to date—by making an appropriate “down payment” on the debt by recognizing a shared responsibility by state government to cover an appropriate amount of the COVID layoffs cost.  In fact, more than half of the states—most with far less dire UI Trust Fund debt than Massachusetts—have devoted federal COVID relief funds to bring down the debt and relieve employers from significant portions of the cost of the layoffs from the pandemic. 
These states have used either CARES Act federal funds from 2020, or committed to using American Recovery Plan Act (ARPA) dollars from the 2021.  Massachusetts is receiving $5.3 B in ARPA funds.  A significant amount of those funds should be committed now to this crisis, to bring down the future borrowing, interest charges, and unprecedented tax increases for employers.  And certainly, the state budget is in very good shapes with continuing increased tax revenues and expenditures far in excess of our rate of economic growth.  
Unlike any past recession, the facts are clear that the UI claims from COVID over the last year were not the fault of employers.  Small business owners did not order the business closures, the work place and commerce restrictions, nor did they prompt school and daycare closures.  Employers certainly didn’t trigger the extra emergency UI benefits which incented many to not work, because the majority of claimants made more on benefits than previously on the job.  And they certainly didn’t cause the hundreds of millions in unrecoverable, fraudulent UI claims.  Government triggered the UI claims due the health concerns, business restrictions and benefits structures, yet under current state law, the entire bill of over $7 Billion is currently being paid for by current and future Massachusetts employers.
We can all understand that 200 legislators are hearing from countless organizations, special interests, and constituent groups looking for a piece of that once in a lifetime kitty of $5.3B in ARPA funds from the federal government.  But Beacon Hill’s very first decision, and their very first investment of those ARPA funds should acknowledge government’s role in the $7 B COVID UI debt, and the need for shared responsibility for that unprecedented tax liability. 
Recognizing government responsibility, and prioritizing fair levels of public investment into those COVID claims, will send the right message that small businesses didn’t cause the problem.  Rather the message would be that it is vital that wage and job growth be incented going forward, rather than the creation of economic stagnation due to the assessment of unfair taxation. 


January 2, 2019 by Jon Hurst, President

As we celebrate the New Year and look optimistically at the future, many small business owners are facing 2019 with fear for their profitability, given new state payroll mandates on wages and paid leave.

Effective January 1, small businesses saw the increased mandated payroll costs of a $1 minimum wage hike.  This increase is on top of a $3 increase which was just fully implemented two years ago, and is the first step of a $4 increase over 5 years.  Together, the $7 hike over 9 years represents an 88% increase over a period of time in which the cumulative inflation rate is unlikely to exceed 20%. But it isn’t just the wages of new employees, it’s the compression effect of higher wages right up the ladder, along with the mandated Social Security, Unemployment Insurance (UI) and workers compensation premiums that come with it.  And on July 1, those payroll taxes will also include a new state family and medical leave tax on employers and employees alike.

In the day and age of the smartphone, you can’t just raise prices to cover these new costs and expect consumers to still pay you for your goods and services when they can buy anywhere.   So to balance out the new mandated payroll costs, Beacon Hill should do the following in 2019 to ease costs:

  1. Fix the Small Business Health Insurance Crisis.  Massachusetts has the second lowest individual premiums, yet the second highest small business premiums in the country.  At the same time large employers pay far less for far better coverage than do small employers.  That is shockingly unacceptable, and is due to discrimination under the law and in the markets. 
  2. Close the Loopholes In The UI System.   Massachusetts is ranked 50th by the Tax Foundation for unemployment insurance systems.  In short, employers and employees alike abuse the system due to an inadequate eligibility system.
  3. Prevent Local Ordinances Affecting Consumer Choices.  Many states by law prevent local ordinances affecting interstate commerce, but MA does not.  So a patchwork on tobacco sales, plastic bag usage, water bottle sales, etc., has emerged across the state due to organized special interest group efforts before 351 cities and towns.  These affect local stores, but unfortunately not the new Internet competition.  For consumer choice and small business competitive reasons, require statewide standards for consumer product sales. 
  4. Pass a Teen Wage.  Thirty-nine states have them.  Let’s make sure 14-17 year olds have the learning and earning opportunities they need, and small businesses have the incentives to hire them.