Senate backs new jobless-fund system Bill would raise taxes but end surcharges

ANNAPOLIS — ANNAPOLIS -- A bill to restructure Maryland's unemployment insurance tax system and charge an immediate $61 million in additional taxes passed the Senate yesterday nearly unchanged from the version that passed the House two weeks ago.

The 38-7 vote in favor of the legislation, written with the help of the Schaefer administration, virtually assures that the bill will become law this year.


The higher taxes are needed, proponents of the measure argued, because the recession has depleted the state's unemployment insurance trust fund. The fund dropped below $170 million this month, far below the $450 million the state considers necessary.

The bill also would make unemployment insurance taxes more responsive to changing employment conditions. The result would be a gradual increase in taxes when needed, rather than a large surtax imposed all at once, typically during an economic downturn.


Under the current system, Maryland businesses will feel the impact of the latest surtax when their tax bills come due -- in April, for most companies. They will find that in order to replenish the trust fund, The companies which pay at the lowest tax rate will have to pay 23 times more taxes.

The bill that passed the Senate yesterday would avoid such crushing surtaxes by raising the trust fund revenues through an increase on the amount of pay on which the tax is levied -- to $8,500 per employee from $7,000. It also would raise the current 6.5 percent maximum tax rate -- paid by employers who consistently add the most people to the jobless rolls -- to 7 percent next year and 7.5 percent by 1998.

Finally, the bill would narrow loopholes that permit employees to collect unemployment benefits after leaving companies voluntarily or being fired for misconduct. That "leakage" cost the trust fund $43 million in benefits in 1990.

Before the legislation can reach the governor's desk, some minorchanges in the Senate version must be accepted by the House.

Observers said that wouldn't be a problem.

Sen. Habern W. Freeman Jr., D-Harford, one of seven senators who voted against the bill, said he opposes any measure that pays "benefits to people who voluntarily quit or are fired." Mr. Freeman said he believes the bill would not eliminate that problem.