Hawaii needs to avoid massive unemployment tax increase

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By Keli’i Akina

For Hawaii employers, it’s deja vu all over again.

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Just like they were a year ago at this time, the businesses that provide jobs to the state’s civilian workforce are in danger of having their annual unemployment taxes skyrocket, which, in turn, could cripple Hawaii’s economy just when it is starting to get back on its feet.

Last year, the tax was supposed to more than triple, until the Legislature finally stepped in to ease the pain. This year it could increase by more than double, from an average of $825 per employee to $1,768.

The tax is legally required to increase because of all the demands on the unemployment system caused by the coronavirus lockdowns, which at one point saw more than 200,000 Hawaii employees out of work.

Many of those employees are still out of work, still drawing unemployment wages and still depleting the state’s unemployment fund reserve, as the state’s emergency restrictions on businesses approach possibly their third year.

When the reserve drops, Hawaii employers are expected to make up the difference.

Last year, the Legislature passed a law that froze the unemployment tax rate for employers at the Schedule D rate — a slight increase from the pre-lockdowns rate, but far less than the catastrophic Schedule H hike that would have otherwise automatically gone into effect.

Unfortunately, the bill was little more than a stop-gap, addressing only 2021 and 2022. Now, as 2023 approaches, Hawaii businesses are once again in a pickle.

Since the lockdowns began, the state has paid out $6.5 billion in jobless claims, leaving the unemployment fund with only $123 million.

In order to keep the fund up last year, the state funneled $800 million from the federal government into it, then cleared that debt with an equivalent amount of federal relief funds. Still, the fund is still far from the $1.3 billion reserve that is deemed adequate for a year’s unemployment claims.

Thus, if the Legislature doesn’t intervene again, the state unemployment tax will soar up to Schedule H — the highest rate — for 2023. That’s an increase of 114%, more than enough to affect hiring decisions or prevent struggling businesses from surviving the lockdowns.

Hawaii was one of the states hit hardest by the coronavirus lockdowns, especially given their effect on tourism. Yet, we’ve seen some positive trends, with the economy growing faster than some predicted, leading to higher state revenues. In fact, the state budget currently has a $3 billion surplus, at least a portion of which could be used to shore up the unemployment fund.

In a recovering economy, the last thing you want to do is introduce a massive tax hike. Instead, you want to embrace policies that grow the economy. That’s because the state can gain far more in revenues from an economic bump than from trying to wring more tax dollars out of already-strapped Hawaii businesses.

The Aloha State’s private sector has had to overcome so much in the past two years. Many businesses have had to close their doors forever. Others are barely holding on, hoping that the worst is behind us.

There are many ways that the Legislature can address this problem. One could be to introduce another rate freeze, to give officials time to reexamine the law and its automatic tax increases.

What we should not do is levy yet another heavy burden on Hawaii’s businesses and disrupt our state’s economic recovery.
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Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.

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