A proposal to slow the implementation of a $1 billion unemployment insurance (UI) payroll tax increase is a prudent policy that eases the burden on Garden State businesses, experts say.
For years, lawmakers and elected officials diverted money from New Jersey’s Unemployment Insurance Trust Fund to pay for unrelated projects. While the fund was on solid footing before COVID-19, job losses stemming from the pandemic and protracted business closures have weakened the foundation.
The current state of the UI fund automatically triggered a payroll tax increase. Rather than taxing businesses the $1 billion at one time, lawmakers want to implement the tax in smaller increments over three years.
“This tax is going to happen, and there’s nothing we can do to unilaterally stop the tax, but what the Legislature can do is they can soften it,” Christopher Emigholz, vice president of government affairs for the New Jersey Business and Industry Association, said in an interview with The Center Square.
The proposed legislation, A-4853 and S-3011, is similar to action lawmakers took in 2010 in the wake of the Great Recession. A decade ago, the fund was operating at a deficit and borrowing federal funds to pay unemployment benefits.
“Policy wise, it’s the right thing to do,” Regina Egea, president of the Garden State Initiative, said of the current proposal in an interview with The Center Square. The goal is “to not create extraordinary burden on the businesses in New Jersey, particularly now.”
Proponents of the legislation say the payroll tax increase would primarily penalize employers that had to lay off employees because of circumstances outside of their control.
The new tax is based on jobs, not revenue, and starts in July 2021. But Emigholz noted the economy will likely still be grappling with the pandemic.
“Hopefully, we’re in a better place. Hopefully, the economy and unemployment are better, but we know that we’re still going to be hurting,” Emigholz said. “… Instead of a massive spike, it is a more manageable phase-in.”
Other states have used federal tax dollars to replenish their insurance trust funds. For example, Georgia used $1.5 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act to repay the money it borrowed for the Georgia Unemployment Insurance Trust Fund.
New Jersey officials could send future money from federal legislation to the unemployment insurance trust fund, Emigholz said.
Shoring up the fund will help reduce the need for automatic tax increases, but the ultimate remedy is a strong economy. New Jersey’s economy has been weaker than other states, and the Garden State generally ranks among the worst for its taxes and fiscal health.
“The stronger your economy is, when there is a hit like this, it can sustain it better, and it recovers more quickly,” Egea said.