Unemployment Insurance Forecast Reveals Risk of Increased Taxes

Oct 8, 2020
Written by Bruce Beckett, Contract Lobbyist

Last week’s unemployment insurance trust fund forecast had a hint of good news. The unemployment rate has rebounded from a high of 16.4% to about 8.3% today.  Despite the lower unemployment rate, however, there still exists a heightened risk for substantial increases in taxes in 2021 and 2022.

The forecast also includes very sobering projections. In total, ESD projects the need to collect more than $878 million in increased UI taxes in 2021, and $1.7 billion in increased taxes (compared to 2020) by 2022. On average, the forecast shows employer UI taxes will increase by 80% in 2021, and nearly triple in 2022.

Unfortunately, the tax increases will fall hardest on employer’s in the lowest experience rate classes.  In other words, employers who have not had employees requiring UI benefits in recent years will incur the highest tax increases. The reason is that costs related to COVID-19 layoffs are not being charged to an individual employer’s experience rate. Instead, they are being distributed across all employers. Accordingly, employers with low experience rates will see up to a fivefold increase in their taxes because most of the increase is in social taxes.

Readers interested in a deeper understanding of the unemployment trust fund trend and an explanation of the different types of potential taxes being considered in the overall unemployment tax increase, you may access this white paper.

Washington Retail is working closely with business stakeholders, ESD and the Governor’s office to identify options to avert these massive tax increases. The options include:

  • Use of federal CARES Act funding to maintain solvency in the UI Trust Fund.
  • Use of state general fund revenues
  • Federal loans or lines of credit can be secured but must be repaid within two years. Again, employers fund the system, hence will be responsible for repayment of any federal loan.

Finally, we are exploring legislative options to adjust the UI tax system during this unique period.