Ohio’s unemployment compensation system needs an overhaul. Fewer jobless workers here receive benefits than in other states, partly because of our high standard for how much you have to earn. And our UC fund has been inadequately financed for decades, causing our fund to go broke in 2009. We have just finished repaying our debt to the federal government, but that still leaves the fund billions of dollars short of where it needs to be.
The Unemployment Compensation Reform Joint Committee finished holding hearings in early November on the UC system, using as its starting point House Bill 394. Many witnesses explained the harm this bill would impose, just as dozens had testified against the bill earlier and it was soundly criticized by newspapers across Ohio. It would slash unemployment benefits while cutting employer taxes – and would still leave the fund far short of solvency.
We need to start over. Ohio benefits are not out of line and a solvency solution should not rely on benefit cuts. A real answer should be based on the main reason why our fund went broke: Inadequate employer taxes. Since 1995, Ohio has taxed just the first $9,000 in each employee’s wages, a number that would be north of $14,000 if it had just kept up with inflation since then. Our solvency level was tied for third-worst in the country just prior to the start of the last recession. Our taxes are below those of every neighboring state, and have been below the U.S. average for 18 out of the past 20 years.
Our proposal to modernize the system and make the fund solvent would:
- Raise the share of wages that employers pay taxes on from $9,000 to $14,000.
- Increase the top tax rate by 1 percentage point. Affected employers would pay a bit more but still wouldn’t pay the full cost of their laid-off employees’ benefits.
- Fix a flaw in the tax system and allow extra solvency taxes to go directly into the state’s trust fund
- Allow unemployed workers to qualify if they have worked for 20 weeks and averaged a weekly wage of 20 times the minimum wage, permitting more low-wage workers access to benefits.
- Create a new employee tax of 15 cents on each $100 in wages after the first $8400.
One of the foremost experts in the country, Dr. Wayne Vroman of the Urban Institute, has simulated this proposal and found that, even including the effects of a modest recession, it would allow the fund to become solvent by 2025. The employee tax would cost a worker making $40,000 under a dollar a week. It provides an employee contribution, but avoids benefit cuts to unemployed workers who can ill afford them. Three states, including Pennsylvania, already have employee taxes. This tax, along with the higher $14,000 wage that employers would pay taxes on, would trigger off when solvency is reached.