Chart: How RI’s unemployment tax system is out of whack

May 5th, 2014 at 10:51 am by under Nesi's Notes, On the Main Site

It’s common knowledge that Rhode Island levies some of the highest taxes in the country to pay for unemployment insurance benefits.

Less well-known is the fact that the state’s unemployment system is structured so a small number of Rhode Island businesses can get their costs subsidized by the vast majority of other employers.

The chart below, obtained form the R.I. Department of Labor and Training, tells the tale.

DLT uses a formula to break employers into 25 different tax brackets based on an “experience rating” of how often their former workers need unemployment benefits. For each of the 25 brackets, the green bar shows how much that group of employers paid into the system in the most recent federal fiscal year, while the red bar shows how much the group’s unemployed ex-workers got out of it:

RI UI taxes paid vs benefits paid 9-30-2013 DLT

The last bar on the right side of the chart shows the employers whose workers are the heaviest users of unemployment benefits. Last year those employers contributed $48.1 million to the unemployment insurance fund in taxes – but their workers took out $61.4 million in benefits.

The difference between those two numbers – $13.3 million – is the amount that those high-using employers didn’t cover for their own workers’ benefits, which had to be covered by the rest of the employers in the system. That’s why so many of the other brackets show more green (taxes paid) than red (benefits paid).

This cross-subsidy from low-using employers to high-using employers isn’t a one-year anomaly – it’s a feature built into the structure of the system.

The highest-using employers paid $51.5 million into the unemployment trust fund in 2011-12, but their workers got out $77.4 million, leaving a gap of $25.9 million for the other employers to cover. In 2010-11, the highest-using employers paid $50.2 million into the trust fund, but their workers got out $88.4 million, sticking the other employers with a $38.2 million tab to cover the difference.

Add it all up and in just the last three years the highest-using employers have gotten their workers’ unemployment benefits subsidized to the tune of $77.4 million by other employers.

This issue is hardly a secret at the State House. Republican gubernatorial candidate Ken Block and Rep. Patricia Morgan, R-West Warwick, have both been beating the drum on it for a while.

Just last year, in fact, former House Speaker Gordon Fox pushed through a bill sponsored by Rep. Joe Shekarchi, D-Warwick, requiring DLT to produce a study “that presents options for adjusting and creating state unemployment insurance laws regarding employees, employers, and industries of a seasonal nature, no later than December 1, 2013.” But the legislation was killed by the Senate Labor Committee.

Asked why Senate President M. Teresa Paiva Weed and her leadership team refused to pass the bill, spokesman Greg Pare said in an email: “This legislation wasn’t received by the Senate committee until June and since there was no Senate companion, there wasn’t an opportunity to hear testimony earlier in the session. I assume there may have been concerns expressed in testimony and the legislation was held for further study until they could be addressed.”

The Senate Labor Committee is chaired by Sen. Paul Fogarty, D-Burrillville, and vice-chaired by Sen. Frank Ciccone, D-Providence.

The House is examining unemployment taxes once again this year. New House Speaker Nicholas Mattiello said in his maiden speech that he will look at lowering the tax, and Rep. Michael Chippendale, R-Foster, wants to create a study commission that would suggest changes to the unemployment insurance system.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

This post has been updated.

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3 Responses to “Chart: How RI’s unemployment tax system is out of whack”

  1. Jim Donahue says:

    So the tourist industry which RI ‘depends on’ is killing new business in RI by dumping their expense on the rest of us.

  2. Steve Lemois says:

    Only this is out of whack?? I laugh in your faces. Bwahahahaha.

  3. Jon K. Polis says:

    I’m STILL WAITING for an answer to this ” related ” question from back in mid-March…

    ” Gentlemen:

    As I recall, a while back, there was an article in the Providence Journal

    that discussed the subject ( as I now recall) of ” funneling off ” @ seventy-five

    per cent (75%) (or more) of the surcharge RI businesses were levied to fund the

    State’s Unemployment Insurance Compensation Account (the portion that was supposed

    to be allotted for Workforce Development and Job Training within the State itself), to paying off the

    Federal loan that the State required in order to finance long term unemployment insurance benefits….

    My question is: When the State of RI finishes paying off this Federal loan,

    will they also, at the same time, reimburse the State’s Workforce Development

    and Job Training Fund the amount they ” borrowed ” from it over this same period of

    time, in order to make this fund (that is so vital to our vast numbers of long term unemployed)

    whole and complete once again?

    Thank you for your time & efforts.

    Respectfully yours,

    Jon K. Polis

    East Greenwich