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Entr402 Ludlow Ui Tax Final


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

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Entr402 Ludlow Ui Tax Final

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