[Congressional Record Volume 145, Number 29 (Wednesday, February 24, 1999)]
[Senate]
[Pages S1945-S1946]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DeWINE (for himself, Mr. Cochran, and Mr. Voinovich):
  S. 462. A bill to amend the Internal Revenue Code of 1986, the Social 
Security Act, the Wagner-Peyser Act, and the Federal-State Extended 
Unemployment Compensation Act of 1970 to improve the method by which 
Federal unemployment taxes are collected and to improve the method by 
which funds are provided from Federal unemployment tax revenue for 
employment security administration, and for other purposes; to the 
Committee on Finance.


             THE EMPLOYMENT SECURITY FINANCING ACT OF 1999

  Mr. DeWINE. Mr. President, I rise today, on behalf of myself and 
Senators Cochran and Voinovich, to introduce the ``Employment Security 
Financing Act of 1999.''
  As you may know, our nation's employment security system was 
established as a federal-state partnership more than 60 years ago. This 
system has not undergone major restructuring since its inception; 
however, a ``temporary'' .2% surtax was enacted in the 1970's. Today, 
this system overtaxes and overburdens employers, shortchanges states, 
and, most importantly, underserves those who need it most--the 
involuntarily unemployed.
  Two separate payroll taxes fund the employment security system. The 
most onerous and inefficient of these is the FUTA (Federal Unemployment 
Tax Act) tax. FUTA is a payroll tax collected by the IRS, dedicated to 
provide administrative funding for states through allocation from the 
Department of Labor (DOL). Unfortunately, FUTA taxes sent to Washington 
rarely find their way back to the states. In Fiscal Year 1997, DOL 
estimated that states sent more than $6 billion in FUTA taxes to 
Washington, but received only $3.1 billion in return.
  Mr. President, reform of the unemployment insurance program is 
essential to a state like Ohio, which receives less than 39 cents of 
each employer FUTA dollar. This shortfall in funding has led to the 
closing of 22 local employment service offices during the last four 
years. In order to make up for

[[Page S1946]]

the shortfall of FUTA dollars, the Ohio legislature has appropriated 
more than $50 million during the last four years to pay for the 
administration of employment services, something that should be funded 
by FUTA taxes. This appropriation of state tax dollars forces Ohio 
taxpayers to pay twice to fund these services.
  Ohio is not alone. Since 1990, less than 59 cents of every FUTA 
dollar has been sent back to the states. In fact, in 1997, states 
received a paltry 52% return on their FUTA tax dollars. As a result, 
many states are being forced to make up the shortfall from their own 
general funds, and cut back on other services provided to the 
unemployed.
  For businesses, the system's consequences are equally severe. 
Employers are forced to pay two separate taxes. The current FUTA net 
tax rate is .8%, or a maximum of $56 per employee. In addition, 
employers must pay a similar state payroll tax to finance unemployment 
benefits. It is estimated that the nation's 6 million FUTA-paying 
employers spend a total of $1 billion annually simply complying with 
FUTA reporting requirments.
  Mr. President, the Employment Security Financing Act is designed to 
address the problems the current system has imposed on the states and 
FUTA taxpayers. Specifically, it would: reduce the tax burden by 
repealing the ``temporary'' .2% FUTA surtax; streamline filings by 
transferring responsibility for collection of the FUTA tax from the IRS 
to the states; improve administration by ensuring that states get a 
greater return on their employers' FUTA tax dollars; improve services 
with an emphasis on reemployment; and combat fraud and abuse.
  This is an important issue that Congress needs to consider. I look 
forward to working with others on legislation that can meet the budget 
rules, yet still achieve necessary reform of the unemployment insurance 
program.
  I ask unanimous consent that letters of support from the National 
Federation of Independent Business, and Strategic Services on 
Unemployment & Workers' Compensation be printed in the Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:
         Strategic Services on Unemployment & Workers' 
           Compensation,
                                Washington, DC, February 19, 1999.
     Hon. Mike DeWine,
     U.S. Senate, Washington, DC.
       Dear Senator DeWine: On behalf of the business community, 
     UWC enthusiastically endorses your proposal, the Employment 
     Security Financing Reform Act, which will save employers $4 
     billion in unemployment tax and claim costs each year and 
     provide a permanent fix for the chronic under-funding of 
     state unemployment insurance (UI) and employment service 
     agencies. UWC is the only national association specializing 
     exclusively in unemployment and workers' compensation issues 
     on behalf of business. Our members include large and small 
     employers and national and state business organizations 
     around the country. Enactment of your proposal is a top 
     priority for UWC.
       Only 50 cents out of each dollar now collected from 
     employers under the Federal Unemployment Tax (FUTA) is used 
     as intended for administering the state UI program. The 
     balance of FUTA revenue is effectively diverted to other 
     programs, disguising the true deficit in federal general 
     revenues and accumulating IOU's in a sham Unemployment 
     ``Trust Fund'' whose apparent buildup will later be used to 
     justify higher unemployment benefits--all at employer 
     expense. This charade would end under your proposal, which is 
     a win/win/win for workers, business, and government. It will 
     save money for employers and make government more efficient 
     and responsive to local needs and conditions. The proposal 
     achieves these results by reducing the FUTA rate and allowing 
     states to fund their agencies at a level closer to the amount 
     actually needed to administer unemployment benefits and help 
     match jobless workers with employers eager to fill widespread 
     job vacancies. It cuts paperwork for employers by eliminating 
     the separate FUTA tax forms; gives each state rather than 
     Washington responsibility to determine how much it needs to 
     administer its unemployment and employment services agencies; 
     and puts 100% of FUTA funds to work reducing state 
     unemployment taxes on business.
       As a business organization, UWC supports adequate but not 
     excessive FUTA taxes. It is inexcusable that the federal 
     government collects more under FUTA than is needed for sound 
     UI administration and yet under-finances the agencies which 
     are responsible for efforts to move UI claimants off the 
     unemployment rolls and match workers with jobs. This under-
     funding directly inflates the cost of state unemployment 
     benefits, which are financed through business payroll taxes 
     at the state level. It has also caused the states to impose 
     $200 million in additional state taxes to make up for the 
     shortfall in FUTA funds doled out by the federal government. 
     It's long past time to fix this problem, and we heartily 
     applaud your leadership in seeking permanent FUTA reform.
           Sincerely,
                                                   Eric J. Oxfeld,
     President.
                                  ____

                                            National Federation of


                                         Independent Business,

                                Washington, DC, February 22, 1999.
     Hon. Mike DeWine,
                                      U.S. Senate, Washington, DC.
       Dear Senator DeWine: On behalf of the 600,000 small 
     business owners of the National Federation of Independent 
     Business (NFIB), I want to commend you for introducing ``The 
     Employment Security Financing Act of 1999.'' One of our top 
     legislative priorities this year is to encourage Congress to 
     cut payroll taxes and return the unemployment system to the 
     states. Your legislation will ease the burden of unemployment 
     taxes on small business and overhaul an inefficient and 
     duplicative system.
       Small businesses tend to be labor intensive, so they are 
     disproportionately affected by taxes on labor. And unlike 
     income taxes, payroll taxes must be paid whether a business 
     makes a profit or loss. Most of our members survive on a thin 
     margin of positive cash flow. Payroll taxes make that margin 
     even thinner.
       Importantly, your legislation takes steps to begin reducing 
     the burden of one payroll tax--the Federal Unemployment Tax 
     Act (FUTA). Specifically, it repeals the ``temporary'' FUTA 
     surtax put in place in 1976 in order to repay loans from the 
     federal unemployment trust fund. Even though this money was 
     fully repaid in 1987, Congress has extended this temporary 
     tax four times, imposing an annual $1.4 billion tax burden on 
     America's employers and employees. Repeal of the surtax is 
     long overdue.
       As this legislation progresses through Congress, we hope 
     that you will look for opportunities to further reduce FUTA 
     taxes. Even with the elimination of the surtax, FUTA taxes 
     collect far more than is needed for the program. In FY 1997, 
     the Department of Labor estimates that states received only 
     $3.1 billion of the $6 billion in FUTA taxes sent to 
     Washington. Permanent FUTA taxes should be cut to reflect the 
     lower costs of the program.
       Finally, we support language in your legislation that 
     transfers responsibility for collecting the FUTA tax from the 
     IRS to the states. This will provide a much needed paperwork 
     reduction boost for small business owners who currently have 
     to fill our separate state and federal unemployment tax 
     forms.
       We thank you for introducing this important legislation and 
     look forward to working with you in the coming months to 
     enact it into law.
           Sincerely,
                                                       Dan Danner,
                            Vice President, Federal Public Policy.
                                 ______