ACTION ALERT | UI Legislation:  Partial Mitigation of Tax Increases, but Significant Increase in Benefit Costs

The House is expected to take up legislation, S.62, this coming week that will include provisions taken from previously discussed legislation, S.10, addressing UI tax and benefit issues.  The current bill will increase UI benefit costs by more than $100 million over the coming years while partially addressing underlying distortions that would otherwise increase UI taxes far above what is necessary to support benefits and restore necessary reserves in the UI Trust Fund.

Addressing UI Tax Issues

As reported previously, employers have been facing significant UI tax increases owing to the impact of COVID on the UI Trust Fund.  UI taxes, set as one of five rate schedules updated every July 1, are determined based on how Trust Fund reserves compare to the most costly benefit year in the last ten years.  The system is intended to provide for sufficient reserves to weather recessions.

However, the losses to the fund owing to COVID were so significant and anomalous that basing taxes on 2020 would drive UI taxes to extreme and completely unnecessary levels over the next ten years.  For context, the net loss to the Fund in 2020 was $270 million, but if nothing was done to change the calculation of taxes based on 2020, the Trust Fund could exceed $1 billion by the end of the decade.

To address this, there will be a provision added to S.62 that would remove 2020 from the calculation of UI taxes, effectively making 2021 the highest cost year that will be referenced.  This would be expected to reduce the growth of the Trust Fund from over $1 billion under current law to between $600 and $700 million by the end of the decade, and also slow the increase in taxes this year and next as the Fund recovers from COVID losses.

While there are concerns that UI taxes will continue to run higher than needed because of underlying issues with the taxable wage base that predate 2020, this provision will largely address issues created by the COVID crisis.

Increasing Benefit Costs

Unfortunately, a number of legislators, particularly the leadership of the Senate Economic Development, Housing, and General Affairs Committee supported by the Senate leadership, are taking advantage of the need to avoid excessive and unnecessary UI tax increases on employers to demand arbitrary increases in UI benefits.  At this point, that demand has taken the form of language to be added to S.62 to require a $25 weekly increase for all UI beneficiaries.  These increased payments would continue over the coming years until an additional $100 million has been spent on benefits.

It is uncertain how long it will take to reach the $100 million in additional expenses, and it is also uncertain what the timeframe will be for UI taxes to increase because of the additional benefits.  But ultimately every dollar in benefits is paid in a dollar in taxes, so this benefit increase will cost employers an additional $100 million over the coming years.

Points in Opposition to Arbitrarily Increasing UI Benefits

AIV and other business organizations strongly oppose the benefit increase being proposed in S.62.

  • Removing 2020 from the calculation of UI taxes simply fixes a glitch that would otherwise collect hundreds of millions of dollars in taxes that the system does not need to pay for benefits and restore reserves in the Trust Fund.
  • Even with the 2020 glitch fixed, Vermont can expect to continue to have one of the highest UI tax burdens in the country, and will likely still collect significantly more in taxes than the Trust Fund will actually need.
  • Rather than simply fixing this unneeded, over-taxation problem, this proposal would arbitrarily add $100 million in additional spending that will be paid for entirely by higher taxes on employers.
  • Vermont’s UI benefits are already high, with Vermont having one of the highest wage replacement formulas for regular benefits, an above average wage replacement for the maximum weekly benefit, one of the few states with no waiting week, and one of the most generous earnings disregard rules allowing beneficiaries to earn wages while still collecting benefits.
  • This benefit increase is completely arbitrary. It has no connection to COVID.  There has been no reduction in UI benefits during this crisis.  There are no shortcomings in UI benefits overall compared to other states.

Contact Your Legislators

With the legislative session coming to an end in the next week or so, and this legislation likely to move quickly through the House and then back to the Senate, we encourage you to contact your Representatives and your Senators to oppose including this arbitrary $100 million increase in UI benefits in S.62 that will increase employer taxes without addressing any legitimate need in Vermont’s already robust UI benefit system.

Additional information will be provided next week, but if you want more information in the meantime or have any other questions related to this issue, please don’t hesitate to contact us at info@aivt.org.

You can identify your Representatives and Senators and find their contact information by clicking here.