Unemployment Insurance Tax Increase Proposed for Nevada Businesses
A cannonball and chain tied around his neck, is how Rick Pollock, owner of Las Vegas trade show production company Total Show Technology, described the potential tax hike employers could face for help replenish the state unemployment trust fund.
“With gasoline prices up 60% and insurance prices up 12% and rents up an additional 10-15% – having another tax increase on top of that, plus what I considers a tax increase to be inflation killing us, “said Pollock, who is also president of Total Show Technology.” I had to accept an 80 percent pay cut. My employees had to accept a cut 25 percent salary.I would love to bring them back to 100% next year, but I’m not even sure if the company is going to support that.
Pollock and several Nevada business leaders were protesting a proposed increase in the state’s unemployment insurance tax, at a virtual meeting on Friday morning hosted by the Job Security Division and the Ministry of Employment, Training and Rehabilitation.
The meeting was held to solicit public comment and consider an Oct. 4 recommendation from the Nevada Job Security Council to increase the average UI tax rate by a third of a percent , from 1.65 to 2 percent, a move that would cost employers about $ 130. more per employee. The board recommendation has been forwarded to ESD administrator Lynda Parven, who will make a formal recommendation on rates by December 8.
In a slight turn of events, Parven announced shortly after Friday’s meeting that the division would not adopt the 2% increase.
“Based on the feedback and engagement we’ve had with the employer community, ESD will not be adopting the 2% increase recommended by the board,” said Parven. “Today we will examine the impacts of a more modest increase of an average rate of 1.85%.”
Nonetheless, public comments from Nevada companies showed that almost all wanted the rate to stay at 1.65% for another year. This means that employers would continue to pay around $ 622 per employee in 2022, instead of $ 695 with a proposed average rate of 1.85% or $ 750 with a rate of 2%, according to the DETR.
Not like the Great Recession
The Unemployment Insurance tax rate, charged to Nevada employers, helps fund the state unemployment trust fund, which is used to pay out unemployment benefits to Nevadans. And a rate hike would help rebuild confidence that was quickly depleted by thousands of jobless claims during the pandemic.
Nevada’s trust fund stood at $ 1.93 billion in January 2020. But a record number of jobless claims saw the trust balance drop to $ 873.14 million at the end of June and empty to zero at the start. December, according to data from the Treasury Department.
DETR borrowed federal funds to the tune of $ 332.4 million to continue paying unemployment benefits. But thanks to Senate Bill 461 passed in July, the state was able to allocate some of its federal COVID-19 relief money to pay off the loan before the interest-free period ended on September 6.
“It took a massive investment at the federal level, making funds available for this purpose – something I didn’t see done, even during the Great Recession,” said David Schmidt, DETR chief economist, in a press release last week. “We got through the recession and the COVID recovery by borrowing less than half of what we did during the Great Recession, and repaying those loans without additional obligations, without needing the interest assessment, and with the possibility of using the normal process of setting the unemployment tax rate. to start recovering.
During the Great Recession, the state borrowed about $ 773 million to cover unemployment benefits. Nevada repaid the loan in 2017, almost seven years after taking it. And back then, employers were paying an average UI tax rate of about 2.7%.
Coverage of your bet
Ray Bacon, executive director of the Nevada Manufacturers Association, was the only person speaking in favor of the 2% increase on Friday.
He told the Review-Journal that funding the trust at a faster rate through a higher tax rate would prevent employers from having to face an even larger tax hike later if the economy was facing another slowdown, citing the rate of 2.7% after the Great Recession.
“We have uncertain factors that we cannot control and… the 1.65 (rate) is not going to rebuild it fast enough,” he said. “Because it’s adjusted every year, it’s probably safe to go a little higher rather than wish we had.”
If the rate remains at 1.65%, the state trust fund would reach $ 561 million next year. At 1.85%, it would climb to $ 628.7 million and about $ 675 million at 2%.
Note that the proposed rates of 1.85% and 2% are an average. DETR noted Friday that an average rate of 1.85% means that about two-thirds of Nevada employers would see a change from “most employers” who would see a 2% increase.
An employer falls into one of 18 different unemployment insurance tax rates, ranging from 0.25% to 5.4%, depending on their “record of experience.” New companies pay 2.95% for the first three years, which sets an experience record.
Janelle Cammenga, policy analyst at the Tax Foundation, said the experience rating is based on how long a business has been in existence and the number of layoffs made. So an employer who has had few or no layoffs in their history has a favorable experience record, falling into a lower UI tax rate.
“It makes a big difference in how much this business pays in UI taxes, because there is a whole schedule of rates and your experience evaluation determines which of those rates you have to pay,” he said. she declared.
And Cammenga said Nevada companies could have faced a huge financial setback if the thousands of layoffs they were forced to make last year were factored into their assessment of the experience – which means that they would be pushed to a significantly higher tax rate.
DETR said in an emailed statement that the Employer Experience Assessment was canceled between the second quarter of 2020 and the end of the third quarter of this year, “helping to ease the tax burden on businesses.”
“Go in the wrong direction”
But businesses still face a long list of setbacks such as rising wholesale costs, supply chain nightmares, shipping delays associated with higher shipping costs, and a labor shortage. -work.
Pollock said his business had been completely shut down for over a year, but was able to bring back its 18 employees.
“We’re just starting over,” he said. “Meeting activities are picking up, things are improving, but they are far from where they were (before the pandemic). “
Alexandria Dazlich, director of government affairs at the Nevada Restaurant Association, said any increase “would seriously hurt” the industry.
“The restaurant industry is suffering a staggering rate with closures exceeding 25% since the start of the pandemic,” Dazlich said. “This increase would create an undue burden on operators trying to keep their doors open and their lights on.”
Cammenga said it is important for states to strengthen their trust funds for future recessions, but timing is just as important.
“The number one priority should be that businesses remain viable, and the best way to achieve this is to take a step back and not hamper their growth,” she said. “And what we are seeing is that raising UI taxes right now is a step in the wrong direction.”
Nevada Franchised Auto Dealers Association executive director Andrew MacKay, whose member dealers are grappling with declining sales, in large part due to a tight inventory caused by global chip shortages, echoed Cammenga’s statement.
“Our concern and opposition is strictly time-bound due to the uncertain economic recovery,” MacKay said. “We are seriously concerned that this is premature and could have a negative impact on businesses. “
Contact Subrina Hudson at [email protected] To follow @SubrinaH on Twitter.