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Unemployment Insurance & Employment Service Reform

The Administration’s New Balance proposal aims to enhance Unemployment Insurance and Employment Services, building upon previous reforms. The proposal includes additional weeks of benefits, distribution of $8B to states for solvency, and cuts in FUTA taxes. It enables states to finance administration from state revenues, simplifies filing, and reforms Extended Benefits. The changes aim to provide flexibility to states, maintaining a strong federal role while cutting taxes and streamlining processes. Transition grants and hold harmless provisions are introduced for a smooth transition. Additional state flexibility provisions and a continued federal role in monitoring and funding are outlined. Further steps involve briefing sponsors in Congress and state partners for the bill's introduction.

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Unemployment Insurance & Employment Service Reform

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  1. Unemployment Insurance & Employment ServiceReform A New Balance

  2. Unemployment Insurance & Employment Service Reform • The Administration’s New Balance proposal will promote flexibility and strengthen Unemployment Insurance and Employment Services to America’s workers and businesses.

  3. The NEW BALANCE Proposal • Builds upon reforms achieved in the Temporary Emergency Unemployment Compensation Act signed by the President on March 9, 2002: • Up to 13-26 extra weeks of benefits are available to eligible workers • $8B distributed to states to strengthen solvency and give states flexibility to improve benefits and services

  4. The NEW BALANCE Proposal • Cuts FUTA taxes and simplifies filing • Enables states to finance administration from state revenues that partially offset FUTA tax cuts • Reforms Extended Benefits • Provides additional flexibility to states and maintains a strong federal role

  5. - Taxable Wage Base = $7,000 - 10 year Federal Tax Savings for Employers - $36.5 B - All employers receive a 0.2% FUTA tax cut FUTA Tax Cut FUTA Tax Effective Rate 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Jan '02 Jan '03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08

  6. FUTA Filing Simplified • Eliminates unnecessary fields on the IRS Form 940, saving employers time and money. • Facilitates the streamlining of FUTA reporting and payment through single-point electronic filing.

  7. Changes to IRS Tax Form 940

  8. Transition to State Administrative Financing • Special Reed Act distribution of $3.5 B would occur in both FY 2004 and FY 2005. • Minimum of $25 million per state • In FY 2005, states would assume partial responsibility for funding UI & ES administration. • States have primary responsibility for funding beginning FY 2007. • Assuming enactment in 2002, states would have two years to enact implementing legislation.

  9. Transition Grants • FY 2005: • For UI, federal grants will be 2/3 of FY02 funding adjusted for workload & inflation. • For ES, it will be 2/3 of PY02 funding adjusted by size of civilian labor force & inflation. • FY 2006: • 1/3 of the FY/PY 02 levels, adjusted as above, will be provided as federal grants.

  10. Hold Harmless • Supplemental federal funding provided to states where maintaining the current level of UI & ES services would cost more than the state equivalent of 0.4% FUTA. This “hold harmless” level would be: • FY 2007: • For UI, hold harmless to FY04 allocations adjusted by workload & inflation. • For ES, hold harmless to PY04 allocations adjusted by inflation. • FY 2008 - FY 2012: • Adjustments made for UI workloads only.

  11. Trust Fund Balance after Reed Act $8.0 B distribution $3.5 B transition dist. Statutory ceilings Impact on Federal Accounts Special Distributions $ Billions 70 60 50 40 30 20 10 0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Beginning of Fiscal Year ( March 2002)

  12. Extended Benefits (EB) Reform • Lower trigger • EB trigger reduced from 5% to 4% insured unemployment • EB available faster in recessions • More unemployed workers get up to 13 weeks of extra benefits • More responsive economic stabilization • Repeals Special Federal Rules • States use existing state eligibility requirements • Easier & less costly state administration

  13. Additional State Flexibility Provisions • Gaining access to National Directory of New Hires for quick detection of fraudulent claims. • Permitting states to cover banking costs by maintaining compensating balances. • Enabling states to follow their own requirements for Reed ActAppropriations.

  14. Additional State Flexibility Provisions • Clarifying that UI claimants need not provide proof of citizenship in person. • Permitting states to use proceeds from sale of federal equity in real property for program purposes.

  15. Continuing Federal Role • Monitoring performance • Funding for federal activities– e.g., • Alien Labor Certification • Tax Credit Administration • Federal Unemployment Claims

  16. Continuing Federal Role • Maintaining federal laws • Social Security Act • Federal Unemployment Tax Act (FUTA) • Wagner-Peyser Act • IRS collects FUTA tax with streamlined filing

  17. Continuing Federal Role • Ensuring conformity/compliance with federal laws • Retained for UI & extended to include ES. • Employers’ tax credit depends on state law and performance meeting federal requirements. • Starting in 2007, loss of credit would result in tax increase from 0.2% to 5.6%.

  18. UI/ES Reform Next Steps • Brief likely sponsors/cosponsors in Congress • Brief state partners and stakeholder groups • Bill introduced

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