Unemployment insurance bill doesn’t go far enough
All employers being penalized for a problem they didn’t cause

By Jon Hurst, Op-Ed in March 11, 2021 edition of Commonwealth Magazine

A BEACON HILL deal has been made to prevent an enormous, unprecedented tax bill in April for Massachusetts employers. Some businesses were aware it was coming while most had no idea. But the Legislature is now acting to provide temporary relief for those first quarter unemployment insurance (UI) tax bills, which otherwise would have resulted in a nearly 60 percent tax increase, averaging $327 more per employee.

Yet, the employer community should ask: “Is this fix good enough for our small businesses, and how did the unprecedented deficits happen?”

Before the COVID crisis hit last year, Massachusetts’ unemployment rate was the envy of the nation sitting at 2.8 percent in January. But by June it was a whopping 17.8 percent. To address the pandemic, emergency government-imposed shutdowns and restrictions were put in place that resulted in massive layoffs and soaring unemployment insurance (UI) claims.

To support laid-off workers, benefits were enhanced and extended beyond normal state unemployment insurance programs. Over the last year, emergency benefits have made it financially more beneficial for as much as 80 percent of recipients to take unemployment benefits than to work. Fraudulent claims have cost the state UI system hundreds of millions of dollars. As a result, it should surprise no one that Massachusetts now finds itself with an extreme funding emergency for our unemployment insurance benefits system.

Gov. Charlie Baker proposed a two-year freeze in the current rates to prevent the looming increase. The governor’s proposal is important and will soon be passed by the Legislature in a package including a Paycheck Protection Program (PPP) small business tax fix on grants, as well as enhanced emergency paid sick leave. Yet, even with this UI freeze, employers will still experience a double-digit increase in the unemployment insurance tax rate, and the long-term tax liability will still exist; it will simply be spread out over a longer period of time.

Long before the pandemic, the Commonwealth had an unemployment benefit system problem. Massachusetts has been ranked dead last of the 50 states by the Tax Foundation for several years. Indeed, the Commonwealth is home to a system that is a combination of unusually lenient eligibility standards along with the most generous benefits in the nation. The result? Extensive and unusual system usage even in good economic times.

In theory, the funding of the system makes sense. The state taxes employers to fund an unemployment fund to cover current annual benefits, as well as to create rainy-day cushions for bad economic times, and to pay back the federal government for borrowing when the fund is in deficit. In practice, however, the state fund has never been sufficiently funded to cover an economic emergency of the magnitude we have experienced over the last 12 months. As a result, the Commonwealth has been borrowing from the federal government since last summer to cover claims, and the fund is now projected to have a deficit of an eye-popping $5 billion.

While government sets eligibility standards and the level of unemployment benefits, taxes to fund those benefits are paid for entirely by employers — and that includes those dollars borrowed from the federal government. And now, due to the pandemic and a failure to manage the program effectively, employers small and large, and in every employment sector, are facing a once unimaginable tax burden regardless of whether they had no layoffs or laid off their entire workforce due to the pandemic.

Furthermore, unlike typical economic downturns, most layoffs over the last 12 months were due primarily to government-imposed shutdowns, restrictions, and public messaging about the pandemic, as well as government enhanced benefits, not due to employer decisions and actions.

With new federal funding on the way to support state and local government budgets and operations wracked by the pandemic, it is imperative that employers receive real assistance to cover a massive deficit they did not cause. At a time when many employers are still not yet back on their feet, asking current and future employers and entrepreneurs to pay deferred taxes amortized over several years could set back Massachusetts’ economic recovery, expansion, and wage and job growth for a generation.

Jon B. Hurst is president of the Retailers Association of Massachusetts