New York Employer’s $9 Billion Tax Increase
New York’s private sector employers are already facing a $9 billion tax increase, without any new state legislative action – and this enormous figure will continue to grow as we enter 2021. As policymakers in Albany consider options for addressing the state’s budget gap and evaluate various revenue measures including potential tax increases on business, they need to recognize that this multi-billion-dollar tax increase will already start impacting the state’s employers in 2021 and will be felt for years beyond.
As of December 31, New York State’s unemployment insurance program had already borrowed $9.42 billion from the federal government, as benefits to unemployed New Yorkers far outpaced the program’s revenues.
The unemployment insurance program is 100 percent financed through taxes imposed on employers’ payroll and, under current law, those federal advances will be repaid through increased state and, ultimately, federal employer taxes. These tax increases will take place automatically under current law, with no new legislation needed. Repayment will result in New York employers paying elevated UI taxes for years to come.
In recent years, total annual state-level UI taxes paid by New York employers have been in the $2.5 to $3 billion range, a figure that has been more than adequate to pay benefits as the state’s economy remained strong and its unemployment rate remained at relatively low levels – as low as 4% in 2019.
However, with state-mandated business shutdowns and a general economic slowdown caused by the COVID pandemic, New York shed nearly 1.5 million jobs in April, with its unemployment rate rising to over 15%.
While the federal CARES act provided billions in enhanced and expanded unemployment insurance benefits to many New Yorkers, that infusion of federal funds did not help pay for “regular” employer tax-supported UI benefit payments. To date, federal relief has been limited to a suspension of interest of federal advances.
New York is not alone, as states in aggregate had more than $45 billion in federal UI advances by the end of 2020. Some have called for additional federal financial support for state’s unemployment insurance programs as part of federal pandemic relief legislation, but no such assistance has yet materialized. Several states have used CARES act funding to help fund UI shortfalls, and New York should consider that option. Otherwise, with New York State facing its own budget challenges, state assistance is unlikely as well.
So, what can be done?
First, the state can ease the immediate negative impact on employers. Governor Cuomo has already given the state Labor Department the authority to suspend “experience rating” in setting employers’ UI tax rates for 2021. This means that employer-specific UI tax rates for 2021 would not be impacted by COVID-related layoffs – a measure receiving broad employer support. We, The Business Council and forty-two other employer organizations have urged its adoption. At a time when many businesses are seeing reduced sales due to COVID, it makes sense to minimize immediate unemployment insurance tax hikes.
Second, even more important, the state needs to avoid imposing additional costs, restrictions and mandates on businesses still struggling to deal with the COVID-induced recession. We face a long and challenging road to recovery. New York State’s focus for 2021 should be on ways to help businesses stay in business, to promote the retention and creation of good paying jobs, and to position the state for a strong post-COVID economy.
Heather Briccetti is President & CEO of The Business Council of New York State.
