Old Business: The unemployment tax
Thu January 29, 2009 12:13 am

Before writing about the rules debate in the House, I want to clear up a misimpression I may have created in a previous post. On Tuesday, before the governor's State of the State address, I wrote a piece in anticipation of the speech in which I criticized the governor for scoring political points by bragging about suspending the unemployment tax paid by businesses. Here's what I said:

In March 2008 Perry announced that the state would stop collecting the tax that funds the unemployment trust fund for one year. This was a showboat gesture (“I believe in truth-in-budgeting: when government levies a tax and collects more money than is needed, we must either stop collecting the tax, return the money or both.”) that made no provision for hard times. The $90 million savings to businesses is now a several-hundred-million dollar hole in the budget that is on his shoulders. He is obliged to propose a fix.

I was half right. The governor was showboating. But the so-called hole in the budget is not a serious problem.

Here is my understanding--gleaned from a friend who is familiar with the law that pertains to the unemployment tax--of how the tax works. The fund is supposed to have an amount of money representing no less than 1% of the estimated annual wages in the state and no more than 2%. If the fund accumulates more than 2%, the Workforce Commission is required to rebate the extra money to businesses. This is because the business community does not want a pot of money lying around as an attraction to be raided by legislative budget writers. The Workforce Commission has various statutory options, such as writing checks to businesses, or suspending collection of the tax, until the balance in the fund drops. Perry made a big deal of supporting a course of action that was already required by law. The commission is also required to replenish the fund to 1% by October 1. This replenishment too is provided for by law. The commission can borrow from the federal government, or from banks, or they can raise the tax. Perry's statement simply was a way of embellishing routine practices that were required by law.

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