US Lawmakers Approve Extension of Unemployment Tax

by Leroy Baker, Tax-News.com, New York

25 September 2009

The United States House of Representatives has approved legislation extending a federal unemployment tax to provide more money for states with a higher-than-average rate of unemployment.

The Unemployment Compensation Extension Act of 2009 would extend unemployment benefits by up to 13 weeks in states where the unemployment rate is 8.5% or higher on a three-month rolling average. It was approved by the House on September 22 after 331 Representatives voted in favor of the bill, to 83 against.

According to Ways and Means Committee Chairman Charles Rangel, a New York Democrat, the provision is deficit neutral because it is fully offset by a one-year extension of a federal unemployment tax known as the FUTA surtax, which has been in place for over 30 years and costs employers USD14 per year per employee. The Ways and Means summary of the legislation also points out that former President George W Bush proposed to extend the FUTA surtax in his last budget. In addition, the bill requires that current reporting on newly hired employees include the date that they started work to reduce UI overpayments, a provision also proposed by the Bush budget, as well as the 2010 Obama budget.

The Congressional Budget Office estimates that the bill would raise about USD1.4bn in extended unemployment benefits over the coming months.

Based on Department of Labor data, Ways and Means Committee staff estimate that by end September, 314,000 workers in high unemployment states across America will exhaust their unemployment insurance benefits and over one million Americans will exhaust their benefits by the end of the year unless Congress acts.

Presently, 29 states are classified as high unemployment states under the current definition. California and Florida will have the highest number of people – at 154,328 and 114,508, respectively – exhausting unemployment insurance benefit but who would be eligible for an extension. Michigan has the highest three-month average unemployment rate at 15.2% as of August 31, followed by Puerto Rico at 15%.

While the overall US unemployment rate is slowing, over 6.9 million American jobs have been lost since the beginning of the recession in 2007, says Rangel.

“Despite signs that the economy is turning a corner toward recovery, we still have more than six jobless workers for every one job available,” he said. “This legislation sends a clear signal that Congress understands the challenges facing these unemployed workers and that we are working to help them meet their needs during this difficult time.”

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