State lawmakers are considering giving businesses some tax relief by temporarily reducing their unemployment insurance contributions.

Two bills to lower the maximum taxable wage base for contributions to the unemployment insurance fund have received preliminary approval in the House. A similar measure will be heard by the Senate Labor Committee today.

Supporters of the idea say it would further stimulate the economy by providing employers tax relief that would help them expand and improve their businesses. They also say the fund already has a healthy balance of $457 million, thanks to low unemployment rates and the state's high taxable wage base.

But others warn the fund should continue to grow to prepare for times when unemployment rises.

Currently employers have to pay unemployment insurance taxes on the first $34,000 that each of their employees earn, the highest in the nation, according to Gov. Linda Lingle's administration. The House bills approved by the Labor and Public Employment Committee would, among other provisions, lower the maximum taxable wage base to the federal minimum of $7,000 for 2006 and 2007. A bill in the Senate would lower the wage base to no more than $10,000 through 2007.

The idea is backed by the administration, whose measures to reduce the taxable wage base for three years appear to have stalled.

Maui Divers Jewelry, which employs about 600 people, would save about $100,000 a year if the wage base was reduced to $7,000, said Bob Taylor, president and CEO of Maui Divers Jewelry.

"Everything has been going up; a savings like that will give us extra working capital to continue to expand our business, reward our employees, etc.," Taylor said. "That one's a no-brainer."

The House measure drew strong opposition from the ILWU Local 142.

"Why continue to contribute to a fund that is flush with money? The reason is simple: there will come a day, as we have seen in the past, that unemployment will rise and the fund must be adequate to support the numbers needing assistance," the ILWU said in its written testimony to the House Labor and Public Employment Committee.

"At a time when the economy is booming and businesses are making money, contributions should be kept up to grow the fund. Then if the fund is healthy when times are bad and unemployment increases, reduction in contributions can be considered to relieve pressure on businesses."

House Labor and Public Employment Committee Chairman Kirk Caldwell, D-24th (Manoa-University), who co-sponsored one of the measures, said because of the way the fund is established it could be difficult to reduce contributions when more unemployment benefits are being paid out.

Reducing the maximum taxable wage base to $7,000 would save employers about $110 million over two years, said Lingle's senior policy adviser Linda Smith. She said if the state reduced the wage base for even three years, the state would still be collecting enough money to cover unemployment payments and maintain a "decent reserve."

Assuming a low insured unemployment rate of 1.1 percent, the fund would decrease from $457 million at the beginning of 2006 to $447 at the end of 2007, according to the state Department of Labor and Industrial Relations.

The measures — Senate Bill 2190 and House Bills 1797 and 2624 — likely face some challenges. For example, the House measures need approval from the Finance Committee to advance to a full House vote. Committee chairman Dwight Takamine, while saying it's premature to take a position on the measures, is cautious.

"We need to look at the big picture and make sure based on our historical experiences that any actions we take will be prudent," said Takamine, D-1st (N. Hilo, Hamakua, N. Kohala).

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com.