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Unemployment Insurance & Employment Service Reform. A New Balance. 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.
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Unemployment Insurance & Employment ServiceReform A New Balance
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.
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
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
- 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
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.
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.
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.
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.
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)
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
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.
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.
Continuing Federal Role • Monitoring performance • Funding for federal activities– e.g., • Alien Labor Certification • Tax Credit Administration • Federal Unemployment Claims
Continuing Federal Role • Maintaining federal laws • Social Security Act • Federal Unemployment Tax Act (FUTA) • Wagner-Peyser Act • IRS collects FUTA tax with streamlined filing
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%.
UI/ES Reform Next Steps • Brief likely sponsors/cosponsors in Congress • Brief state partners and stakeholder groups • Bill introduced