State House News – With unemployment soaring, state lawmakers are considering ways to soften the blow from a major impending increase in the taxes employers pay toward the state’s unemployment system, a jump in costs that one business group described as a “pretty staggering.”
With the unemployment insurance trust fund suddenly facing a multibillion-dollar deficit over the next four years, the contributions required from Massachusetts businesses are set to increase nearly 60 percent when the calendar turns to 2021 and then continue growing at a smaller rate through 2024.
Those higher taxes – estimated at an average of $319 more per qualifying employee next year – will be due starting in April, raising concerns that the sharp uptick will put a drag on the economic recovery from the ongoing COVID-prompted recession and make it more difficult for employers to bring back jobs they cut.
The Legislature has on occasion stepped in to prevent a significant increase from hitting employers, but it’s unclear if it will do so this year. Lawmakers continue to weigh ideas to accelerate economic growth.
During the Great Recession, lawmakers and former Gov. Deval Patrick agreed to several consecutive years of unemployment insurance rate freezes amid projections that the rate schedule would climb to the highest allowable level.
A key lawmaker said this week that the anticipated increase in 2021 might not come to pass.
Sen. Patricia Jehlen, who co-chairs the Labor and Workforce Development Committee, told the News Service she believes the Legislature will look to freeze rates on employers to limit the additional strain, but stressed that because of the size of the shortfall, the federal government will need to play a role in any solution.
“Traditionally, and I think we would want to do this again, we would need to freeze,” Jehlen said. “We would love to freeze rather than allowing it to go up during a recovery because so many businesses are in trouble. But we really need help from the feds to make that possible.”
“Like everything else, we’re just totally dependent on the federal government in this situation,” she added.
Over the first six months of the COVID-19 pandemic, Massachusetts – like many other states – faced an unprecedented level of demand for joblessness benefits and demand remains high. The state paid more than $4 billion in aid between January and July, compared to just $812 million over the same period in 2019.
The account used to pay those claims was not equipped for the sudden surge. At the end of July, it was already $748 million in the red, and the Baker administration projected in an August quarterly report that the shortfall will grow to nearly $2.5 billion by the end of the year.
Each of the following four years will also run negative, officials estimate, pushing the five-year total to a roughly $20 billion net deficit – an outlook that is somewhat better than the $27 billion net deficit projected in the previous quarterly update issued in May.
To help prevent the fund from becoming insolvent, the average cost per employee is estimated to increase from $539 in 2020 at rate schedule E to $858 in 2021 at rate schedule G. Officials expect to remain at the highest rate schedule through 2024, topping out at an average cost per employee of $925 in the final year of projections.