State increases jobless tax

Businesses and workers in Pennsylvania are facing their first unemployment tax hike since 1996, according to the state Department of Labor & Industry.

The tax increase is slated to take effect next year and will cost $98 million, with businesses picking up $57 million of the tab. For employers,

The money will boost the sagging trust fund that pays benefits to unemployed Pennsylvanians, a population that grew during the latest economic downturn.

Layoffs in Central Pennsylvania have hit workers at numerous companies, including Manor Township, Lancaster County-based Armstrong Holdings Inc., which laid off 97 hourly workers in Lancaster last month Communication Dynamics Inc., a telecommunications equipment distributor in South Londonderry Township, Lebanon County, shed 250 workers over the last year.

"There are some folks wondering now if we ever even came out of the recession," said Stephen Herzenberg, an economist and executive director of the Keystone Research Center, a think tank in Harrisburg.

The state unemployment rate was 5.3 percent in August, down from a peak of 5.7 percent in May. Unemployment was 4 percent in March 2000. Economists were uncertain if the figure would rise or fall in the months ahead.

The state is increasing unemployment taxes for 2003 to stem depletion of the unemployment compensation trust fund. In 2002, the fund is expected to pay out $2.6 billion, and taxes are expected to raise $1.5 billion.

The fund balance is expected to fall to $1.7 billion by the end of this year, down more than 25 percent from $2.3 billion at the end of 2001, said Karl Stage, unemployment claims research manager for the Labor Department. The fund had $2.8 billion at the end of 2000.

The state likes to have a nine-month cushion in the trust fund, Labor Department spokesman B arry Ciccocioppo said. In other words, the fund should be able to keep paying benefits for at least nine months, even if people and companies stop paying into it.

The state calculates unemployment taxes by comparing the trust-fund balance against the average payout for the previous three years. If payouts have been running high and the balance falls, taxes go up.

The reverse was true in the booming 1990s, and taxes declined. This year, for example, businesses are paying an average of $4 less per employee than they otherwise would have, Stage said.

Now, with the economy in a toss-up between recession and recovery, the state is adding to the tax burden.

In 2003, the average business will pay $330 per employee in unemployment taxes, up from about $296 this year, Stage said.

Workers have paid nothing into the fund since 1996. In 2003, they will have to pay 20 cents for every $1,000 in annual wages. A person making $50,000 a year, for example, will pay $10.

Also this year, the state slowed elimination of the Capital Stock and Franchise Tax, a levy based on corporate assets. The phaseout was supposed to save businesses $182 million this year, but the legislature halved that figure to help offset the state's budget deficit.

The unemployment tax hike would have been twice as high if Pennsylvania hadn't saved $338 million it received from the federal government in March, Stage said.

The money was part of the so-called "Reed Act," which helped states meet unemployment costs after last year's terrorist attacks. Some states spent the money for other purposes, Ciccocioppo said.

Pennsylvania warned companies of the tax increase in a Labor Department newsletter this fall. But word hasn't reached every business owner.

"If that indeed is going to go up, it's just another unfriendly trait of Pennsylvania, which would probably help business decide not to settle here," said Roger Sandt, president and owner of Sandt Products Inc.

Based in Lancaster, Sandt Products makes paper rolls for cash registers, automated teller machines and other business equipment. The company has about 35 workers and $7 million in annual sales. Sandt said none of his workers have been laid off this year.

Sandt said the state wastes money by giving benefits to people who also receive severance packages.

"I don't understand the rationale," Sandt said. "If an employee is making just as much as before termination, why heap money on top of that? If they don't have a job at the end of (their severance pay) then it seems OK to do that. During that time, I don't think it's prudent."

As long as people lose their jobs through no fault of their own, they are entitled to state benefits, regardless of any severance packages they receive, Ciccocioppo said.