Idaho unemployment insurance tax rate to drop for second straight year
Idaho’s unemployment tax rate is dropping for the second straight year, with the 2017 decrease set at 6 percent, the state Department of Labor announced this week. That drops the standard rate to 1.395 percent, down from 1.488 percent in 2016. All rate classes will see a reduction, except for the most deficit-rated employers, whose rate is fixed by federal law at 5.4 percent.
The standard rate is the rate that all new employers pay, before they’ve achieved an experience rating over six quarters; it’s also the basis from which rates are calculated for all employers, most of whom pay less than the standard rate. According to the U.S. Department of Labor, Idaho employers paid an average of 1.27 percent on each dollar of tax-eligible wages in the first quarter of calendar year 2016, the most recent figures available; that’s tied with Hawaii for 9th-lowest in the nation.
Yet, at the Associated Taxpayers of Idaho conference last week, a speaker from the Tax Foundation said that group’s “Business Tax Climate Index” ranks Idaho poorly – 46th – for its unemployment insurance tax. “I guess I take a little bit of exception with their rating, because they’re not looking at all factors involved,” said Michael Johnson, unemployment insurance division administrator for the Idaho Department of Labor. “Our fund is solvent. Iowa is ranked No. 4 in their rankings, and their fund is not solvent.”
He also noted that the speaker incorrectly said new Idaho employers pay the highest rate; they don’t. “Idaho’s new employer pays 1.395 percent,” Johnson said. “He may have just flat-out misspoke.”
There are a variety of ways to look at state unemployment taxes, and it’s a complex matter, with rates varying between states on factors ranging from industry type to the individual employer’s experience with unemployment claims. “It’s not apples to apples,” Johnson said. The Tax Foundation was particularly critical of Idaho for setting a wage base for applying the tax of $37,800. Johnson noted that California has a wage base of $7,000, but a new-employer tax rate of 3.5 percent. Comparable employers in the two states would pay more than twice as much in California, he said.
Idaho’s higher wage base, he said, is “a way to keep the overall rates low and spread it out.” Washington’s wage base is $44,000.
Idaho’s unemployment tax has had a troubled history. After a big recession in 1983, Idaho pushed its tax rate up to the highest in the nation at the time, 2.4 percent of payroll, and sharply cut benefits to keep the fund from going bankrupt. But once the fund recovered, lawmakers targeted the unemployment insurance fund’s large reserve and repeatedly cut tax rates. The fund went broke in the recession that peaked in 2009, and Idaho had to borrow $202 million from the federal government, with interest, to keep paying unemployment claims. Since then, the fund has stabilized, and Idaho now ranks among the top states for solvency; the balance is $674 million.
“If Idaho fell into recession today – one roughly the same size as it did during the Great Recession – the state should not need to borrow any money,” said Ken Edmunds, director of the Idaho Department of Labor. “When it comes to unemployment insurance tax rates, businesses want consistency, so they know what the future holds. What’s almost worse than having moderate taxes is having taxes that bounce all over the place.”
