Indiana House Votes to Repeal Tax Hike on Employers

February 25, 2010

The Indiana House has passed legislation that would repeal an increase on taxes that employers pay into the state’s unemployment insurance fund, which is deeply in debt to the federal government.

The Democratic-controlled chamber voted 90-5 to repeal the tax increase, which was approved last year in hopes of beginning to shore up the insurance fund. It has been paying out hundreds of millions of dollars more in benefits than it has been taking in through employer taxes and has borrowed $1.6 billion from the federal government to remain solvent.

The Republican-ruled Senate had passed a bill earlier this session to delay for one year the tax increase to take effect later this year, saying it would cause businesses to layoff workers in a still struggling economy. But House Democrats joined House Republicans in amending the bill on Feb. 23 to repeal the tax increase altogether.

Meanwhile, the House approved several amendments to another bill that are designed to create jobs. The amended unemployment insurance bill and the jobs package are now eligible for passage in the House. Both bills likely will head to a House-Senate conference committee, where compromises between the chambers will be sought.

Although House Republicans joined Democrats in voting for the tax increase repeal, Republicans still object to changes House Democrats made that would expand eligibility for unemployment benefits and raise the maximum weekly amount of benefits.

Democrats say the expanded eligibility standards would allow the state to get $148 million in federal stimulus money for the insurance fund and allow more people to get benefits. But Republicans say once the federal stimulus money runs out in about two years, the new standards and higher maximum benefits would cost the fund up to $120 million more a year.

The tax increase would cost employers an additional $360 million this year.

House Speaker Patrick Bauer, D-South Bend, said his caucus decided to support a repeal because House Republicans had criticized them for passing the increase last year while leaving benefit levels the same.

Bauer said he hoped the agreement would intensify conference committee negotiations to make other changes to the system that could benefit workers.

“It seems like we were carrying all the water on that issue and we want them (Republicans) to share that carry,” Bauer said.

House Minority Leader Brian Bosma, R-Indianapolis, said the repeal was an important first step in fixing a “terrible program” passed last year. But although his caucus supported that, it did not approve of the expanded eligibility and benefit increases Democrats had amended into the bill in committee and Republicans likely would vote against the overall bill.

Democrats control the House 52-48, so they can pass the bill on their own and send it to conference committee.

The amendments to create jobs had wide bipartisan support. Bauer said they would create thousands of new jobs.

The amendments include tax credits for small businesses with fewer than 150 employees that hire new workers; tax breaks for new Indiana businesses; requiring companies with state contracts to hire 80 percent of their work force from Indiana; and spending $20 million to draw down $100 million in federal stimulus funds so companies can hire up to 10,000 people who are poor and out of work.

House Democrats said they were unsure how much the package would cost but said much of it could be offset by prohibiting certain tax shelters that some businesses use.

Leaders of the House and Senate have said that they would not approve any bills this session that would spend any significant amount of money because of declining state revenues and dwindling reserves.

But House Democrats said the state has to do more to create jobs. The state’s unemployment rate for December, the latest figures available, was 9.8 percent.

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