PAYMENT DILEMMA Hard choices on long-term unemployment


Gerald Jeffein, who owns Kaufman's furniture store in Baltimore, can't understand why lawmakers may want to increase taxes on employers to pay for extended unemployment benefits.

There's already $8 billion in a federal fund intended to pay extended benefits to jobless workers who have exhausted the regular 26-week entitlement. Businesses such as Kaufman's, in Old Town Mall, have been paying into this fund for years.

"If they have a fund there, for that use, why don't they use it?" Jeffein asks.

Jeffein's complaint echoes throughout the business community as Congress debates proposals to extend benefits by as many as 20 weeks. The full Senate and a House committee are expected to vote this week on extension bills.

Although many in the business community support an extension, they oppose new federal taxes and don't want to broaden the program to include jobless people who did not work for companies that pay unemployment insurance taxes.

The tax problem is compounded for Maryland businesses. In addition to the federal tax, they pay a state tax to cover regular unemployment benefits. State officials recently ordered a 1.7 percent tax surcharge because higher unemployment caused by the recession has depleted Maryland's unemployment insurance trust fund. Employers fear the tax may rise an additional .5 percent in October.

Before the surcharge, Maryland employers were assessed a tax ranging from .1 percent to 6.5 percent of the first $7,000 of each worker's pay. The federal tax is an additional .8 percent.

The surcharge significantly increases the tax paid by companies like Hecht's, which has been paying .4 percent. The new rate, 2.1 percent, is a "very costly change," says chairman Thomas Fingleton.

"I know right now Maryland is going to be at an economic competitive disadvantage because . . . the rates are quite a bit lower in Virginia," Fingleton warns.

Each state has different tax systems. But nearly all have had to deal with rising unemployment, which has reached 7 percent nationally, the highest in five years. Maryland's rate is 5.8 percent.

The number of unemployed people receiving benefits under regular state programs continues to rise and reached 3.5 million during the week ending July 6. As that number increases, so does the number of workers who have tapped out their 26 weeks of compensation. More than 18,000 Marylanders are in this group.

Congress is considering two approaches to extending benefits.

The Senate Finance Committee has approved a plan that would give jobless workers from four to 20 weeks of additional compensation, depending on the state's unemployment rate. Maryland workers now would be entitled to an additional four weeks.

This plan would be financed by the existing $8 billion federal fund and require no new taxes.

A plan favored by the chairman of the House Ways and Means Committee would extend benefits from five to 20 weeks and let President Bush choose how to pay for it: increase employer taxes or use the existing fund.

The problem with using the existing fund -- the question on Jeffein's mind -- relates to the federal budget deficit.

To mask the true size of the federal budget deficit, the government counts unspent money in the unemployment fund as regular revenue. Surpluses in the Social Security and Highway Trust Funds are used the same way, even though they were set up as fiscally independent programs outside the normal government budget.

This sleight-of-hand bookkeeping makes the deficit look smaller

than it really is. But when it comes time to spend money in the unemployment trust fund, Congress and the Bush administration are in a bind because they agreed last year not to increase the deficit beyond certain specified limits.

To use the fund, Congress either must raise taxes on employers or cut the federal budget somewhere to keep the deficit from appearing to rise. The only alternative is to have Bush declare an emergency, which would permit additional spending -- and borrowing -- without new taxes.

But Bush administration officials want Congress to cut spending. They say a declaration of emergency amounts to breaking the budget agreement of last year. Many lawmakers are antsy about raising taxes or breaking the agreement, and might therefore prefer the House approach, which would force Bush to make the difficult decision.

Maryland Rep. Benjamin L. Cardin, D-3rd, a member of the Ways and Means panel, favors an extension of benefits but still hasn't decided whether he'll support the bill in its present form because of its financing mechanism. He says, however, that the chairman's support of the bill probably means the committee will approve it.

Employers aren't sympathetic to the government's dilemma. They've paid money into a federal fund to provide extended benefits and don't want to pay more before that fund is used.

"Now what is being proposed on the House side . . . is an increase in the taxable wage base of employers, in other words a massive increase in taxes on employers in order to pay for an extension of benefits. And we don't understand," says J. Eldred Hill, president of UBA, Inc., an organization that represents business on the issues of unemployment and workmen's compensation.

Hill says employers prefer the Senate bill. But he objects to a provision that would base benefit extensions on the total unemployment rate -- all people who are out of work -- rather than the jobless rate among people who had worked for companies paying unemployment insurance taxes.

The so-called unemployment insurance rate, which is used now, ensures that people for whom taxes were paid receive the benefits, he says. A housewife rejoining the work force after years at home, or a student who is in the job market for the first time, should not be counted, he says.

He also opposes a provision in both bills that would give jobless workers in all states at least four additional weeks of benefits, regardless of the unemployment rate. Without this provision, Maryland workers would receive no extension.

But Hill agrees with organized labor that present law needs to be changed to provide qualified workers extended benefits during a recession. The current "trigger" for paying extended benefits is set too high, he says.

Meanwhile, employers await congressional action, which could be completed before the lawmakers recess Aug. 5. They return in September.

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