Since when is borrowing billions of dollars from the federal government a fiscally conservative strategy? Yet Gov. Charlie Crist, Senate President Jeff Atwater and House Speaker Larry Cretul, all self-proclaimed fiscal conservatives, are vowing to roll back slated increases in unemployment compensation taxes. That means the state will have to continue borrowing from the federal government at a tremendous clip to meet jobless claims.
Crist is calling on legislative leaders to postpone 2010 increases in unemployment taxes. Cretul, R-Ocala, says he wants rollbacks for the next two years so that the minimum state tax amount per worker is around $25 and not the current $100.30.
This is in direct response to Associated Industries, the powerful business lobbying group, and Florida employers who are balking at up to 12-fold increases in per-worker taxes at a time when many businesses are struggling. Last year, the minimum annual rate for unemployment taxes was only $8.40 per worker. Now it's $100.30. The maximum annual rate also rose from $378 per employee in 2009 to $459 in 2010.
This sharp boost occurred because Florida failed to properly prepare for a significant recession when times were good. As the state's unemployment rate rose, the state's Unemployment Compensation Trust Fund quickly ran dry. Under state law, when the trust fund falls below 4 percent of taxable payroll — which it did in 2009 — an automatic trigger imposes higher unemployment taxes on employers the following year.
Another part of the increase is due to lawmakers finally raising the taxable wage base. Up until this year, Florida collected unemployment taxes only on the first $7,000 of each employee's income — an amount that had stayed the same since 1983 when Congress established that as the minimum. Other states tax on average the first $11,800 of worker income, and many states index their taxable wage base to rising incomes to keep up with wage inflation. But antitax Florida kept the rates as low as possible until the economic crisis hit. Last year lawmakers upped the taxable wage base to $8,500 — a change set to sunset in 2015 — with no indexing. The proverbial too little, too late.
In the meantime, to keep jobless benefits flowing, Florida has been borrowing about $225 million every month from the federal government. Those millions will have to be repaid, plus interest, or Florida's employers will begin to lose a 5.4 percent federal tax credit.
Cretul is cognizant of these consequences. Rather than put state taxpayers on the hook for the federal interest charges that will be collected starting in September 2011, Cretul wants lawmakers to assess employers starting in January 2011. But that means in 2012 employers will be paying principal and interest on potentially billions of dollars in federal advances while they are replenishing the state's trust fund — financial pain prolonged and exacerbated by the proposed unemployment tax rollbacks.
Boosting unemployment taxes in the midst of a record-breaking recession is not a good option, and maybe some part of the increase should be reduced in the short run. But the state's leaders are looking to cut taxes deeply now, which means much larger tax increases later. By then it will be some other politician's problem. That's not fiscally conservative; that's avoiding responsibility.