State senators agreed Thursday to a one-year delay to a scheduled increase in the unemployment insurance tax, sparing businesses an estimated $107 million.
The Senate Ways and Means Committee and the Senate Judiciary and Labor Committee voted for a bill to postpone the tax increase, which would have hit businesses later this month. The bill, which earlier cleared the state House, is expected to be approved soon by the full Senate and reach Gov. Neil Abercrombie, who has indicated he will sign it into law.
"It was very important that we act now so that the costs for businesses wouldn’t go up," said state Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee. "We’re hopeful that the unemployment situation is looking better."
The unemployment insurance tax on businesses was scheduled to increase automatically to help replenish a reserve used to pay benefits. If the higher rate were allowed to take effect, businesses that now pay about $720 on average per employee would have to cover an additional $300.
The Chamber of Commerce of Hawaii and other business interests had asked lawmakers for a two-year delay in the rate increase to give businesses more certainty about tax liability. But they were satisfied that lawmakers acted quickly.
"This really will help as our industry gets a little stronger, not having to deal with this jump in unemployment insurance," said Carol Pregill, president of the Retail Merchants of Hawaii.
While House and Senate lawmakers wanted to help businesses during the economic recovery, the history of the unemployment reserve offered a cautionary tale about altering the system. It was built to establish a reserve when the economy is strong to cover the increase in unemployment claims when the economy weakens. Automatic rate increases help maintain the reserve.
But tax breaks for businesses in 2007, when the reserve was flush, and the easing of an automatic rate increase in 2010, when the reserve was headed into insolvency, helped deplete the reserve and led the state to borrow from the federal government to cover unemployment claims.
Dwight Takamine, director of the state Department of Labor and Industrial Relations, cautioned lawmakers that delaying the scheduled rate increase this year might only set businesses up for larger rate adjustments in the future.
The bill — House Bill 2096 — also temporarily increases the maximum weekly unemployment benefit until the end of the year to 75 percent of the average weekly wage, up from 70 percent, a small boost for people who are out of work.
State Rep. Karl Rhoads (D, Chinatown-Downtown), chairman of the House Labor and Public Employment Committee, said the state should still have a reserve at the end of this year unless unemployment claims cycle higher. He said the state should be able to replenish the reserve over the next few years if, as predicted, the economy recovers.
"Economics is largely about consumer confidence," Rhoads said. "I think the economy is getting better. I think there are rational reasons to believe it’s improving."
State Sen. Sam Slom (R, Diamond Head-Hawaii Kai) said that while averting the tax increase would help businesses, lawmakers have not done enough to reduce the state’s tax and regulatory burden.
"It’s election year," he said of majority Democrats’ decision to delay the tax increase. "If it would have been last year or next year, I doubt that it would have happened."
