In President Trump’s budget proposal, one policy provision highlights why the time is now for Ohio’s legislature to fix our broken – and nearly broke – unemployment compensation system. Under the proposal, a new minimum solvency standard is created, and employers in states that fail to meet the new standard will see a reduction in the Federal Unemployment Tax Act (FUTA) credit.
Under the new standard, employers in state’s with unemployment compensation trust fund balances that cannot pay at least six months of benefits in a recession will be at risk of losing the majority of their FUTA credit. Whereas, current law only reduces the FUTA credit when the trust fund balance is insolvent.
This means employers in those states with lower unemployment compensation trust fund balances face the prospects of paying an additional $378 per employee in payroll taxes since the employer FUTA credit will be lowered from six percent on the first $7,000 dollars of wages to 0.6 percent on the first $7,000 dollars in wages.
Unfortunately for Ohio employers, our trust fund balance is projected to go insolvent after only three months of benefit payments during a recession, so businesses here will be negatively impacted by the proposal.
However, the President’s proposal would likely not have any impact on employers in the Buckeye State had action been taken to reform our state’s unemployment compensation system after the last recession in 2009 when Ohio borrowed more than $3.4 million from the federal government to cover unemployment benefits.
The Ohio Chamber of Commerce has continuously advocated for reforms to our unemployment compensation system that would increase the trust fund solvency and put the state in a position where it will not be forced to borrow from the federal government at the next recession. Yet, due to the inability of the legislature to pass meaningful reforms, only three other states have a lower trust fund solvency level than Ohio.
We believe now is the time to reform Ohio’s broken unemployment compensation system, and the President’s proposal is one more reason why waiting is no longer an option.