That fund, already borrowing federal money that must be repaid, must eventually be replenished, but who will bear that responsibility?
Unemployment insurance is funded by taxes and employers, both at the federal and state level. The cost is the same for all states for the federal unemployment taxes. Businesses pay varying levels of state employment tax based on their number of workers, type of business, and how much the state pays out in unemployment benefits. A higher maximum unemployment benefit typically leads to a higher state unemployment contribution from businesses.
Greg Baise, treasurer of the Coalition for Jobs, Growth & Prosperity, warned last week that the cost of making the unemployment insurance trust whole again would inevitably fall on employers.
“Illinois businesses will have to be paying taxes for years to repay the loss of those funds in the unemployment insurance system,” he said.
Businesses will also pay a lower rate if they don’t lay off workers often. Illinois Policy Institute senior budget and tax research director Adam Schuster said the state could suspend that provision so companies that laid off employees because of the pandemic don't get penalized.
“While unemployment taxes would still go up, they wouldn’t go up on small businesses who have had to lay people off through no fault of their own,” he said, adding that many other states had already done so.
This isn’t the first time Illinois’ unemployment funds were drained. In November 2011, Illinois lawmakers had to borrow $2.4 billion to pay back the emergency loan they had to take out at the height of the Great Recession to refill the UI trust. At the time, the state's unemployment fund was one of a handful of state funds without enough cash on hand to handle even a moderate unemployment spike. That debt was fully paid off in 2017, according to a report from the Illinois Comptroller.
Schuster said the rate is likely to increase again for businesses just months after the rates had fallen.
“Increasing unemployment insurance taxes can slow your recovery because it deters businesses from hiring right after a recession when you really want them to,” he said.
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