Entr402 Ludlow Ui Tax Final

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Project analyzing UI levels between states, and offering a possible long-term solution

Project analyzing UI levels between states, and offering a possible long-term solution

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  • A trust that is funded through federal and state employer taxesPays people who are willing and looking, but cannot find work
  • authorizes the Internal Revenue Service to collect a federal employer tax
  • All Employers paying out $1,500 in wages in any quarterWages are taxable only once a year regardless if they were reported to another state
  • Amount of money in fund divided by total Taxable Wages
  • The State Trust funds are running out of moneyEstimated 35 insolvent state funds by the end of 2010Many states have extended the amount of weeks benefits can be paid in order to help our nation’s unemployedIncreased payouts result in an increased tax rate
  • FundReason for this isWhat this means is..
  • Some Rates, next slide will show more
  • MD has high rates and low benefits relative to the surrounding states studiedThis may be part of the reason why our trust fund has yet to become insolvent
  • These rates show that there may be a correlation between the unemployment rates and benefits relative to unemployment
  • Currently a trigger in place that switches to a lower tax table if reserves are 5.5% above last taxable wages
  • Raising tax rate increases variable cost of labor up to the tax ceiling
  • 1Help build up a sufficient level of reserves for when benefits payout levels increaseCurrently there is a trigger that lowers the tax rate automatically if fund levels are 5.5% above last years taxable wagesAn attempt to tie the fund to GDP and the economyPrevents build up of sufficient reserves2Low wage workers by making them less expensive to employersHigh wage workers because the tax rate was lowered and employers are paying the same amount

Transcript

  • 1. Unemployment Insurance Tax
    Chad Ludlow
  • 2. What Is Unemployment Insurance
    Trust Fund
    Pays unemployed citizens
    26 weeks maximum eligibility in most states
  • 3. How is it Legal?
    FUTA – Federal Unemployment Tax Act
    Employer tax
    Different from other funds
  • 4. Who pays the tax
    Employers all pay in
    Wages are taxable only once a year regardless if they were reported to another state
    Pay the difference between states
  • 5. State Rate Calculation
    Equation
    Amount of money in fund
    Taxable Wages
    Tax Tables
    Rates are selected from the tables based on the equation
    Tables A-F
    http://www.labor.state.ny.us/ui/bpta/TaxTable.shtm
  • 6. Individual Employers’ Rates
    New Employer rate
    First 3 years of business
    Average of industry rates
    UI Taxes($) paid by industry Taxable UI Wages($) of industry
    Experience rates
    In business more than three years
    Reflects the history of UI claims filed
    UI benefits paid by employer for previous 3yr Taxable UI wages associated with employer for same 3yrs
  • 7. Trust Funds
    The State Trust levels
    22 states have already borrowed federal money
    35 insolvent state funds by 2010
    PA & VA have borrowed
    Extended Benefit Weeks
    Increased Payouts
  • 8. UI tax legislation in Maryland for 2010
    Second lowest table (B) to the highest (F)
    Extended benefits by 13 weeks
  • 9. Current levels of UI in MD
    Maryland Fund Balance
    Sep 30, 2008 >> $895M
    Sep 30, 2009 >> $301M
    For 2009
    Rate - 0.6% to 9.0%
    Taxable Wages - $8,500
    Minimum per employee - $51
    Maximum per employee - $765
    Eff. January 2010
    Rate - 2.20% to 13.5%
    Taxable Wages - $8,500
    Minimum/employee - $187
    Maximum/employee - $1,147.50
    • Maryland Benefits paid in millions
    • 10. 2007 >> $397
    • 11. 2008 >> $477
    • 12. 2009 >> $890
    • 13. Difference in dollars between 2009 and 2010 rates
    • 14. $136 - $382 per employee
  • Surrounding State Rates 2009
  • 15. Tax/Benefits Comparison chart
    (Source: U.S Dept of Labor)
  • 16. Unemployment
    (Source: http://money.cnn.com)
  • 17. Problem
    Limits on fund levels
    Trigger 5.5%
    Short-term relief
    Pay-as-you-go
    The increased tax forces increased labor costs
    During/after recessions
    Short-term unemployment
    Price increases/Inflation
    Bankruptcy/Consolidation
  • 18. High-wage workers make more than Maryland’s taxable wage-base of $8,500
    Low-wage workers make less than Maryland’s taxable wage-base of $8,500
  • 19. Implications
    Raising the taxable wage-base
    Hurts high-wage workers (above the wage-base)
    Employers pay out for a longer period of the yearhttp://www.does.dc.gov/does/cwp/view,a,1232,q,537820.asp
    Raising the tax rate
    Hurts low-wage workers (below the wage-base)
    Increased variable cost of labor
    Value will be eroded over time due to inflation
  • 20. Recommendations
    Revise upper-limits to build up reserve funds
    • Sufficient reserves
    Proportionately lower tax rate & raise ceiling
    Increases employment of low wage workers
    Does not make higher wage workers more expensive
    Maryland Budget & Tax Policy Institute
  • 21. Outcome
    Stabilized Program
    Same general dollar amount into the fund
    Fair to employers/employees
    Reduced burden on the state trust funds
    Allows tax rate to remain low
    Unemployed citizens find jobs
    Lower taxes encourages additional employment
    Allow fund levels to build up
    Tax rates will not need to be increased during recessionary periods
    Rainy day fund will function as intended
  • 22. El Fin
    Questions