LaHood: Delaying repayment of pandemic loans risks higher taxes on job creators and higher inflation for families
Due to the inability of Democratic governors to repay pandemic-era federal unemployment loans, employers face the threat of tax hikes that could drive up inflation, Republican Ways and Means Committee Leader, Rep. Kevin Brady (R-TX) and Ways and Means Representative Darin LaHood (R-IL) warned in a recent letter, urging Governor Pritzker of Illinois to prioritize the repayment of outstanding loans.
As reported by Thread stitches, “LaHood’s letter outlines reasons why Illinois should pay. “Without refunds,” he wrote, “businesses on Main Street risk facing higher taxes that will undermine job creation and drive up prices, just as families and small businesses face struggling with record inflation and an impending recession”.
- “Pritzker outright lied about this case earlier. Last July, Pritzker was asked directly why he was not using ARPA money to pay off the unemployment loan. Pritzker claimed that ARPA money could not be used for this purpose, which was simply untrue…”
- “Illinois’ so-called “balanced” 2022 budget entirely ignored the unemployment trust fund hole, which at the time was over $5 billion. This deception is made possible because the trust fund is in a separate account from the general fund, where the balance is claimed. Even for the General Fund, our stupid budget accounting simply ignores growing debts, as we have often explained.
- “It is also important to remember that Illinois must not only repay the federal loan, but is obligated by federal rules to restore the unemployment trust fund to a reasonably expected positive balance to cover unemployment claims. routine. It will cost at least another billion dollars.
Representatives Brady and LaHood warn that delaying the refund could mean tax hikes for job creators as early as early November – it couldn’t come at a worse time as we enter a recession.
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- If states don’t repay these loans, employers risk bearing the brunt of state inaction by raising taxes.
- Despite having access to generous federal coronavirus relief funds and record budget surpluses, these states have failed to repay their loans on time.
- Outstanding loan balances mean businesses in California, Connecticut, Illinois and New York could face a reduction in the Federal Unemployment Tax Act (FUTA) tax credit, which which would lead to an increase in the FUTA tax.
- Employers in those states could see an increase in their net federal unemployment taxes in 2023, with the maximum rate rising from $42 per covered employee to $63 per employee.
LILY: LETTER: Democratic Governors’ Inaction Risks Raising Unemployment Taxes on Main Street Businesses
How the Federal Unemployment Tax (FUTA) works:
- The first $7,000 paid annually by employers to each employee is taxed under FUTA (at a gross tax rate of 6%). This can be a maximum federal tax of $420 per employee per year.
- However, in general, few employers have to pay so much tax, because employers in states with U.S. Department of Labor-approved programs get credits that reduce the tax burden. (They may deduct up to 5.4 percentage points of state unemployment taxes paid on the 6.0% tax rate, bringing the net federal minimum unemployment tax rate to 0.6%).
- Since most employees earn more than the $7,000 taxable salary cap in a calendar year, the FUTA tax is typically $42 per worker per year. However, these savings can be wiped out if the state does not repay the loans.
How non-payment of loans by states leads to higher taxes for companies:
- Employers in states whose unemployment insurance funds have outstanding loans (or federal advances) for two or more consecutive years could see their FUTA credit reduced by 0.3% for each year of outstanding balance if they do not not reimburse at the beginning of November. These credit reductions gradually increase over time.
- For outstanding balances over 3 years, a second credit reduction applies, and after 5 years a different FUTA credit reduction calculation takes effect.
- Additional federal taxes attributable to the credit reduction are applied to the outstanding state loan. Thus, additional tax revenue from employers is used to pay off a state’s outstanding debt, essentially leaving businesses to foot the bill.
- This means higher taxes for employers at a time when they are struggling to find workers and other costs are rising.