INDIANAPOLIS (WISH) – Indiana lawmakers will consider a new option that could help cut out a growing tax hike hitting Hoosier businesses. A bill introduced this week would issue bonds in order to reduce the tax burden.
As I-Team 8 uncovered Wednesday , businesses across Indiana are being impacted this month by an increase in the Federal Unemployment Tax—or FUTA.
Since 2009, Indiana has been borrowing money from the federal government in order to continue paying its unemployment claims. By 2010, Indiana’s debt on that borrowed funding had ballooned to more than $2.2 billion. This month, the Department of Labor lists the state’s debt as nearly $1.8 billion.
It is money the federal government wants repaid, and Hoosier business owners are being asked to help foot the bill. In each of the last two years, businesses have seen their FUTA rate go up.
Starting Jan. 1, the rate Hoosier businesses pay became the highest in the nation at $63 in additional taxes per employee, per year. That rate could go up to $84 next year if the state doesn’t repay enough of the loan to strike a deal with Washington.
To avoid that increase, Senator Karen Tallian (D-Portage) introduced a bill on Monday that would authorize the state to issue bonds. Senate Bill 541 would use that money in order to pay the debt off and eliminate the federal government’s tax penalty on businesses.
Six other states—Idaho, Kansas, Texas, Illinois, Michigan and Pennsylvania—have already taken that approach.
“It would certainly help our businesses out to not have to pay that tax,” Tallian said. “I don’t know if this is the right solution for us, but the bill directs the Indiana Finance Authority to come up with the numbers to find out. And, if it’s the right move, then they would have the authority to issue bonds. This does not force them to do it, but it allows them to do it.”
It’s not the first time Tallian has tried to convince lawmakers it’s a good idea to look.
She’s filed similar bills over the last two years, but has never even gotten so much as a co-sponsor.
“But, the previous bills were assigned to the Tax and Fiscal Policy Committee. This one will be heard by the Appropriations Committee. So, maybe that’s a better chance. The [Indiana] Manufacturers Association and the [Indiana] Chamber of Commerce have already indicated to me their support as well,” Tallian said.
But, not all lawmakers believe the approach would end up saving *Hoosier employers.
“You still end up having to pay the bond off,” said Rep. Dan Leonard, (R-Huntington), who wrote the 2011 bill that laid the framework for the current FUTA debt repayment system. “The only savings is in the interest. And, [we considered that], absolutely. We looked at a lot of possibilities.”
Businesses in nearby Michigan and Illinois are now paying their bond interest down.
Illinois sold $1.5 billion in bonds in August, and employers are now paying into a fund to pay it back. Employers with fewer layoffs in their history are paying at a lower rate than those with high layoff history, but all employers saw their FUTA rate cut in half in 2013.
In Michigan, starting in 2010, employers who were current in their unemployment payments for at least five years were offered a state unemployment tax credit for up to 50 percent of their FUTA increase.
But, facing a $3.267 billion bill to the federal government, Michigan also issued bonds in late 2011, cutting out the FUTA increase to businesses. In order to pay the bond interest back, the FUTA increase was replaced with a state “obligation assessment,” based on a business’ current unemployment tax rate of between roughly 0.5 percent and 0.75 percent. That tax is around half what businesses were projected to pay under the FUTA increase.
20 others states, including Indiana and the U.S. Virgin Islands, currently have outstanding debt to the federal government due to unemployment trust fund borrowing.
“It seems to have worked in other areas,” Tallian said. “I’m not saying it’s definitely right here. But, we ought to find out.”