| Yesterday, it was reported that NJ employers will face what could be a $1.1 billion payroll tax hike as a result of the sagging economy. And it didn't take long for republicans like Tom Wilson to go on the attack - trying to pin this on Jon Corzine.
Now, being that my area of expertise and what my "real" job has focused on for the past 17 years is employment taxes, including state unemployment taxes, I (1) was waiting for a republican to pounce on this, and (2) knew what the real deal is with the unemployment fund. So, it gives me a bit more pleasure to combine my work and political lives and smack down republican ignorance in the process.
Background
The "tax hike" is something that is automatic and was written into the NJ unemployment law many many years ago, and is based on something that pretty much every state that calculates unemployment tax the same way that NJ does faces as well (around 30 states). Unemployment tax rates are calculated using a certain formula (which is irrelevant for this purpose), but based on how much is in the overall unemployment fund, any of a number of "rate schedules" or "rate tables" would be used. I believe NJ has 5 rate schedules, and as a contrast, NY has around 10, CA has around 8, while some other states have more than 10. When the state
"unemployment reserve fund" hits a certain level, or dips below a certain level, a particular rate table automatically kicks in. In good times, a rate table with lower rates is used, and in bad times a rate table with higher rates is used in order to replenish the depleted unemployment reserve fund.
It should be noted that these laws are rarely changed (NY changed its laws in the mid 1990s, and that is rare). So, the use of various rate tables is something that shouldn't be pinned on the Governor (Democratic or republican) or the Legislature (Democratic or republican).
NJ's Unemployment Reserve Fund
Here is where it gets interesting. In good times, employers should get a break on their unemployment taxes - and in many states they do. NC and TX drastically reduced their unemployment taxes in the 1990s, and many states used the lower rate tables. As a result, less unemployment taxes were paid, and the fund grew at a lower rate, although there were less unemployment claims, so the fund decreased at a lower rate as well. During these times, the rate tables used (I believe) were relatively consistent. However, beginning in 1993 (under Whitman - the republican Governor), approximately $4.6 BILLION was diverted FROM the state unemployment fund, thereby decreasing it further. Most of this was diverted to pay for years of unfunded hospital charity care, but millions were also diverted to pay for other budgetary shortfalls and expenses.
However, 2 very interesting things happened when Corzine became the Governor - both of which we will see either ignored or twisted around by republicans looking to score a cheap hit while not realizing how outlandish their claims are: First, Corzine stopped this practice with his first budget in FY 07, and second, he actually transferred hundreds of millions BACK into this fund in order to avoid the kicking in of a higher tax rate table earlier: In an effort to avoid a business tax increase, Governor Jon S. Corzine today said he would redirect funds into the state's Unemployment Trust Fund which pays unemployment insurance benefits to workers who have lost their jobs through no fault of their own.
This is the second such payment ordered by Governor Corzine in the past nine months. In June 2008, Governor Corzine added $260 million to the fund to avoid triggering a business tax increase that would have approached $400 million in July of 2008. He is now adding another $270 million to help avoid triggering the tax increase this coming July.
The level of resources in the fund changes weekly as revenue comes in and benefits are paid out. During this national economic crisis, benefit payments in New Jersey, as in most states, have outpaced revenue into the UI Trust Fund.
In the 14 years from Fiscal Year (FY) 1993 through FY 2006, approximately $4.7 billion was diverted from building the reserves of the UI Trust Fund and those dollars were put to other purposes in the state budget. Governor Corzine ended that practice in his FY 2007 budget.
Over the next few weeks and months, we will no doubt hear about how Corzine is "hiking payroll taxes for NJ employers". However, this could not be further from the truth - not only is this out of his control, but he was the only Governor since this practice started under Whitman's administration to NOT ONLY STOP DIVERTING FROM the unemployment fund, but also to DIVERT MONIES BACK INTO THE FUND in order to avoid such a tax hike for employers.
Let's see if Christie or other prominent republicans join Tom Wilson aboard the misrepresentation express and show their ignorance for how one of the most basic and uniformly applied taxes that all employers pay in every single state works - and what the impact of a sagging economy, coupled with diversions from the one fund meant to dictate how much in unemployment taxes are paid does to that fund. But my guess is that since republicans don't ever look far enough down the road (like Corzine did when he replenished the fund that had been depleted over the prior 14 years), they won't see this - after all, most of these diversions occurred on their party's watch. |
