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The Honolulu Advertiser
Posted on: Tuesday, January 26, 2010

Lingle plan halves employers' tax hike

BY Greg Wiles
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Gov. Linda Lingle

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An onerous jump in unemployment taxes paid by Hawai'i employers would be reduced under a legislative proposal put forth by Gov. Linda Lingle.

Lingle yesterday unveiled her plan to blunt the increase set to take effect this year, with a series of temporary changes that would require the state to borrow more money from the federal government but save businesses nearly a half a billion dollars over a four-year period.

Lingle, along with Rep. Karl Rhoads, other legislators and the Hawaii Chamber of Commerce, have come out with proposals to mitigate the increase, which is mandated by law because of dwindling balances in the fund from which unemployment taxes are paid.

Unless the law is amended, the average annual tax paid by employers in the fund is scheduled to shoot up nearly twelvefold from $90 annually to $1,070. For an average employer with 10 workers, the bill would skyrocket from $900 annually to $10,070.

Business groups, along with the Lingle administration and legislators, have worried the increase would further damage the state's economy. They worry that employers would be forced to let go workers to pay for the increase.

Yesterday Lingle proposed changes that would about halve the increase, with the bill going to $600 this year, or roughly 60 percent of what's scheduled.

"Under our proposal, employers will pay only 60 percent of anticipated tax hikes, saving businesses $497 million over the next four years," Lingle said in her State of the State address yesterday.

"We believe strongly that anything beyond this 60 percent threshold will cause large job losses."

The unemployment tax is set through a complex formula that includes the amount of wages to be taxed, various tax rates that can be triggered depending on the unemployment trust fund finances and benefit payment levels.

Under Lingle's proposal, there would be no cuts to the benefit levels. The plan also envisions borrowing more money from the U.S. government than some other proposals and features an increase to higher taxes during the middle part of the decade.

A comparison of plans by the state Department of Labor and Industrial Relations shows the average tax per employee would go to $600 this year, $690 next and $880 in 2012.


In 2013 the average assessment would be $900 per employee, followed by a jump to $1,310 in 2014.

Labor Department spokesman Ryan Markham said the proposal is structured so that the big increases come in several years' time, when the economy will presumably be better and employers can better afford the increase.

"It would help the economy the most," he said.

It also would come with a bigger borrowing bill than other proposals from Rhoads or the Chamber of Commerce. Lingle's plan envisions the fund running deficits and requiring federal borrowing for the next four years.

Rhoads, who heads the House Labor Committee, and the Chamber's proposals each propose running deficits for two years. Rhoads yesterday said he had tried to come up with the best bill possible in time to get it before his committee so that a March deadline could be met for avoiding the big increase in unemployment taxes.

He said he had worked with the Labor Department and others and gone through eight revisions before having to conclude his work.

"There's so many ways to skin this cat that no matter which approach you take there is some arbitrariness to it," Rhoads said. "At some point you have to draw a line in the sand."

As proposed, Rhoads' bill relies on less borrowing, calls for the tax to rise to an average of $630 this year, and $1,290 next. A hearing on his measure is scheduled for this morning.

The Chamber proposal is similar to Rhoads' plan in that unemployment trust fund deficits would occur this year and next. It calls for average assessments to rise to $630 this year and $970 in 2011.

Rhoads said he would have hoped the Lingle administration would have come in earlier with its proposal so that he could review it and get it up for hearing earlier. The deficits projected in years three and four of Lingle's plan also concern him.

Markham said the state's proposal will cost about $22 million in interest and that Lingle is hoping Congress extends a moratorium on states having to pay interest on the unemployment fund borrowing.

As it stands, however, the administration believes the proposal provides a good tradeoff $22 million in costs that will ultimately be paid by employers for avoiding $497 million in unemployment taxes.