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Businesses won’t face tax surcharge and laid-off workers won’t face benefits cut in Louisiana—for now

September 25, 2020
Originally posted on The Advocate

Businesses received temporary relief from an automatic 20% surcharge on their employment taxes, and jobless workers dodged for now a 10% cut in their payments thanks to the non-action of a state government board on Friday.

The move by the Revenue Estimating Conference gives state legislators more time to prevent the tax surcharge and benefit cut that state law mandates because the fund that pays unemployed workers has nearly been exhausted.

The REC’s decision does not affect the ongoing payments to jobless workers, which have been at record numbers because of the economic devastation caused by the coronavirus.

The fact that the unemployment trust is likely to run out of state money by Oct. 5 also would not affect the payments. The state is preparing to continue those same payments with money borrowed from the federal government.

At some point, however, the state will have to repay the money it borrows and to replenish the unemployment trust fund, which is funded by a tax on employers.

The trust fund currently has $48 million and is drawing down about $35 million per week currently, said Ava Dejoie, secretary of the Louisiana Workforce Commission, the state agency that oversees unemployment payments.

The issue the four-member REC was grappling with Friday was whether to pull the trigger that would require the tax surcharge and benefit cut to take effect on Jan. 1.

The REC took up the issue because state law requires the board to certify by Oct. 1 how much money the unemployment trust fund will have by next August to determine the tax on businesses and the benefit amount for the jobless for the upcoming year.

Dejoie told the REC members that she projects the fund will have only $187 million next August. That amount is so low that it automatically would trigger the 20% tax surcharge on businesses and the 10% cut in unemployment benefits to begin to replenish the fund.

Businesses would have to pay from $2 to $54 more per employee in taxes a year, depending on the business, and the maximum payment to laid-off workers would drop from $247 per week to $221.

But the trigger would take effect only if the REC took the formal step of certifying next August’s revenue projection.

Two REC members – House Speaker Clay Schexnayder, R-Gonzales, and Senate President Page Cortez, R-Lafayette – refused to do that, with Cortez saying he wanted to buy time by Oct. 1 to devise a solution that would prevent the automatic tax surcharge and benefit cut from taking place.

One likely possibility is to have the state Legislature, during the special session that begins Monday, suspend the trigger provision that would require the tax surcharge and benefit cut. That move would suspend the trigger from taking effect for one year.

Jim Patterson, an expert on the state unemployment law for the Louisiana Association of Business and Industry, said in an interview that that legislative move would keep employers from paying extra taxes while the economy is weak and laid-off employees from suffering a benefits cut while unemployment is high.

“We will have bought ourselves some time to see where we stand,” Patterson said, adding that suspending the trigger would allow the Legislature to return to this issue during next year’s regular session.

Cortez said with hope that Congress might pass legislation in the coming weeks that would refill unemployment trust funds throughout the country that have already run out of money or soon will do so, as in the case of Louisiana.

If not, the state will have to take its own brand of financial medicine.

Patterson noted that when the Oil Bust exhausted the unemployment trust fund during the 1980s, the state issued a bond to pay off the federal money it borrowed, and lawmakers imposed a temporary tax surcharge on businesses and a temporary rate cut to laid-off workers to pay off the bond holders over six years.

Nobody is seriously considering that as a proposal now, or at least not yet.