Capitol Update from Senator Eddie Lucio, Jr.

April 5, 2004

UNEMPLOYMENT COMPENSATION

As is the case with highway funds, Texans send much more unemployment tax money to Washington than they get back--37 cents for every dollar.

The lack of coverage adds to the taxpayer burden when workers don't get unemployment benefits and must seek other forms of public assistance to secure medical treatment or feed their families.

The federal unemployment tax requires employers to pay a quarterly payroll tax of up to .8 percent (up to 6.2 percent for states not in compliance with federal unemployment compensation tax laws) on the first $7,000 in wages for each employee. This amounts to a tax for employers of about $6 to $7 billion per year nationally, with only about half that amount returned to the states to fund services.

I would consider supporting reform of this tax in a manner that would increase the money Texas gets to keep.

The state unemployment tax is used solely to pay benefits to qualified workers who have lost their jobs through no fault of their own and are actively seeking work, but the tax rate may be insufficient.

For example, we tax businesses for only the first $9,000 of wages per person with the idea that we would rather pay for a deficit when it occurs rather than save for a rainy day. Some are suggesting raising that rate to keep the unemployment fund healthy.

However, any legislative action attempting to help the backbone of this state--our workers--should also attempt to enhance the business climate. It is critical that we do everything within our power to strengthen those who create the jobs in the first place.

The Legislature also needs to evaluate this state's unemployment rules. The broad definition of employee misconduct may necessitate a narrower definition to prevent unsubstantiated accusations of misconduct by some employers.

Part-time workers, like stay-at-home mothers who work at part-time jobs for years, do not qualify for any unemployment benefits when laid off involuntarily. The rule is that the worker must seek and accept a full-time job or be disqualified.

While many states base unemployment compensation on the last four quarters of employment that a person completed, Texas bases unemployment on the first four of the last five completed quarters to determine if sufficient wages were earned to qualify. This practice is based on the "New Deal" era system when employers would send wage information to Austin via Pony Express and when this country had a more stable workforce.

Contract workers and those who are dependent on the weather because they primarily work outdoors, suffer greatly from unemployment compensation laws based on the antiquated quarters system. A person's salary and workload often increase with time, so the early quarters are a weak indicator of salary and work stability. Changing that system would add 7 percent more workers to the unemployment rolls, particularly minorities and women.

As Senator of an area (South Texas) with an unemployment rate of 10 percent compared to a statewide rate of 6.3 percent, I am concerned about the suffering of hard-working people who become displaced and cannot easily be re-employed, yet they cannot qualify for benefits to tide them over.

Currently, only 28 percent of unemployed Texans receive unemployment benefits versus 40 percent for the national average. Much to its discredit, Texas ranks 47th nationally in the amount of unemployment compensation we pay, especially to low-wage workers.

People who can still buy products and pay for services, though unemployed, help a struggling economy stay afloat--it's an anti-depression device. In Texas, business taxes have decreased 33 percent in the last 10 years. So funds in the program are already low, and the problem is compounded by the minimal federal reimbursement.

Another issue that has caught this Legislature's attention is the hiring of independent contractors. National studies have shown that when employers classify their employees as independent contractors instead of paying taxes on the employees, it weakens the integrity of the program's funds.

We are looking at the unemployment compensation program in Texas very closely, and as a business proponent, I will continue to emphasize the need to support economic development. We must build on the countless sacrifices made regularly by business men and women and their employees throughout our state.

NOTE: Sen. Eddie Lucio, Jr. sits on the Senate Committee on Business and Commerce.

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