Business backs jobless-fund tax overhaul Employers seek to avoid paying hefty state surtax

ANNAPOLIS — ANNAPOLIS -- Man bit dog yesterday: Business called for higher taxes.

At a hearing before a House committee, representatives of thousands of Maryland businesses endorsed a Schaefer administration plan to raise an immediate $61 million in unemployment insurance taxes.


But despite a strong show of support from the state chamber of commerce and other groups, there was dissension. Bethlehem Steel Corp. warned that the proposed changes would be "catastrophic to the economy," particularly a plan to raise the amount of payroll on which unemployment insurance taxes are levied.

"Please look at the ramifications it's going to have on an already depressed economy," said Edward R. Snowden, a spokesman for Bethlehem Steel, which announced plant closings and layoffs this week in Pennsylvania and Maryland.


The higher taxes are needed, the state says, because the recession has sapped the trust fund from which jobless benefits are paid. The fund, which is fully financed by taxes on companies, has dropped to about $172 million from the $450 million the state considers necessary.

If the fund is depleted, Maryland will have to borrow from the federal government. That would cost businesses even more as the interest payments came due.

To answer that immediate need, a special 2.2 percent surtax was imposed on all employers beginning Oct. 1. Because the unemployment insurance tax is charged on the first $7,000 each employee earns during the year, most businesses paid their 1991 unemployment insurance taxes well before October and won't experience the 2.2 percent surtax until the end of the first quarter of this year.

The surtax will hit some companies harder than others. Depending on how often they lay off employees, companies' payrolls are taxed at rates ranging from 0.1 percent to 6.5 percent.

For those taxed at the lowest rate of 0.1 percent, the 2.2 percent surtax means their unemployment insurance tax bills will jump 23 times higher.

A 100-employee company that used to pay at the lowest rate, for example, would see its total bill rise from $700 to $16,100.

To avoid such severe recession-induced increases, business groups supported a plan yesterday to make broad changes in the entire system. The changes would raise additional funds a little at a time when needed, rather than levy a major surtax all at once.

Under the plan, heard before the House Economic Matters Committee, taxes would be paid on the first $8,500 earned by an employee, up from the current $7,000.


It would increase the highest tax rate, now 6.5 percent, to 7 percent next year and to 7.5 percent by 1998. And it would raise taxes 0.2 percentage points for everyone except those paying the highest rate.

The bill also would lower the current 2.2 percent special surtax to 1.7 percent.

Supporters argue that the proposed overhaul of the system would make it more responsive to the changing employment conditions that depleted the trust fund so quickly when the recession hit. That would make each ensuing surtax smaller.

"The chamber supports these measures," said Stuart Gordon, a lobbyist for the Maryland Chamber and Economic Development Associates, a recently merged combination of two major business groups. "It'll raise more taxes in good times so that the [surtax] will be less harsh in bad times."