The perpetual imbalance in Maryland's unemployment insurance fund needs fixing. Too little money flows in during good times; too much seeps out in bad. A surtax is used to bridge the gap. But perversely, it forces businesses to take a major tax hit at precisely the time they can least afford it.
A bill making its way through the General Assembly would smooth out these peaks and valleys by taxing businesses more in lean times to provide a cushion for darker days. Among other things, it would raise the base of taxable employee income to $8,500 from $7,000. The highest tax rate businesses would pay would jump from 6.5 percent to 7.5 percent by 1998. These and other changes would have the effect of making the benefit fund less vulnerable to economic swings.
These changes are essential and too long in coming. With the exception of a few flush years in the late '80s, the fund has been a perennial loser propped up by an onerous surtax. Last year, it took in $200 million, but claims were $510 million, leaving the fund $300 million in the hole.
This system is irrational and works poorly. Yet Bethlehem Steel claims that the proposed changes would be "catastrophic" in an already depressed economy. But doing nothing would be even more disastrous. Last year, there were 183,000 claims for unemployment benefits. The state's rate remains close to 7 percent, something unlikely to change soon. The surcharge businesses are now paying to cover the fund's shortfall addresses the immediate problem, but doesn't provide for future benefits.
This probably explains why representatives of thousands of Maryland businesses and organized labor are behind this plan even though it means higher employer taxes. The reforms contemplated by this bill are the sort of long-term solutions necessary to protect this vital safety net. They deserve support and passage by state legislators.