[Congressional Record Volume 150, Number 97 (Wednesday, July 14, 2004)]
[House]
[Pages H5669-H5672]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SUTA DUMPING PREVENTION ACT OF 2003
Mr. HERGER. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 3463) to amend titles III and IV of the Social Security Act
to improve the administration of unemployment taxes and benefits, as
amended.
The Clerk read as follows:
H.R. 3463
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``SUTA Dumping Prevention Act
of 2003''.
SEC. 2. TRANSFER OF UNEMPLOYMENT EXPERIENCE UPON TRANSFER OR
ACQUISITION OF A BUSINESS.
(a) In General.--Section 303 of the Social Security Act (42
U.S.C. 503) is amended by adding at the end the following:
``(k)(1) For purposes of subsection (a), the unemployment
compensation law of a State must provide--
``(A) that if an employer transfers its business to another
employer, and both employers are (at the time of transfer)
under substantially common ownership, management, or control,
then the unemployment experience attributable to the
transferred business shall also be transferred to (and
combined with the unemployment experience attributable to)
the employer to whom such business is so transferred,
``(B) that unemployment experience shall not, by virtue of
the transfer of a business, be transferred to the person
acquiring such business if--
``(i) such person is not otherwise an employer at the time
of such acquisition, and
``(ii) the State agency finds that such person acquired the
business solely or primarily for the purpose of obtaining a
lower rate of contributions,
``(C) that unemployment experience shall (or shall not) be
transferred in accordance with such regulations as the
Secretary of Labor may prescribe to ensure that higher rates
of contributions are not avoided through the transfer or
acquisition of a business,
``(D) that meaningful civil and criminal penalties are
imposed with respect to--
``(i) persons that knowingly violate or attempt to violate
those provisions of the State law which implement
subparagraph (A) or (B) or regulations under subparagraph
(C), and
``(ii) persons that knowingly advise another person to
violate those provisions of the State law which implement
subparagraph (A) or (B) or regulations under subparagraph
(C), and
``(E) for the establishment of procedures to identify the
transfer or acquisition of a business for purposes of this
subsection.
``(2) For purposes of this subsection--
``(A) the term `unemployment experience', with respect to
any person, refers to such person's experience with respect
to unemployment or other factors bearing a direct relation to
such person's unemployment risk;
``(B) the term `employer' means an employer as defined
under the State law;
``(C) the term `business' means a trade or business (or [an
identifiable and segregable] a part thereof);
``(D) the term `contributions' has the meaning given such
term by section 3306(g) of the Internal Revenue Code of 1986;
``(E) the term `knowingly' means having actual knowledge of
or acting with deliberate ignorance of or reckless disregard
for the prohibition involved; and
``(F) the term `person' has the meaning given such term by
section 7701(a)(1) of the Internal Revenue Code of 1986.''.
(b) Study and Reporting Requirements.--
(1) Study.--The Secretary of Labor shall conduct a study of
the implementation of the provisions of section 303(k) of the
Social Security Act (as added by subsection (a)) to assess
the status and appropriateness of State actions to meet the
requirements of such provisions.
(2) Report.--Not later than July 15, [2006] 2007, the
Secretary of Labor shall submit to the Congress a report that
contains the findings of the study required by paragraph (1)
and recommendations for any Congressional action that the
Secretary considers necessary to improve the effectiveness of
section 303(k) of the Social Security Act.
(c) Effective Date.--The amendment made by subsection (a)
shall, with respect to a State, apply to certifications for
payments (under section 302(a) of the Social Security Act) in
rate years beginning after the end of the 26-week period
beginning on the first day of the first regularly scheduled
session of the State legislature beginning on or after the
date of the enactment of this Act.
(d) Definitions.--For purposes of this section--
(1) the term ``State'' includes the District of Columbia,
the Commonwealth of Puerto Rico, and the Virgin Islands;
(2) the term ``rate year'' means the rate year as defined
in the applicable State law; and
(3) the term ``State law'' means the unemployment
compensation law of the State, approved by the Secretary of
Labor under section 3304 of the Internal Revenue Code of
1986.
SEC. 3. USE OF NEW HIRE INFORMATION TO ASSIST IN
ADMINISTRATION OF UNEMPLOYMENT COMPENSATION
PROGRAMS.
Section 453(j) of the Social Security Act (42 U.S.C.
653(j)) is amended by adding at the end the following:
``[(7)] (8) Information comparisons and disclosure to
assist in administration of unemployment compensation
programs.--
``(A) In general.--If, for purposes of administering an
unemployment compensation program under Federal or State law,
a State agency responsible for the administration of such
program transmits to the Secretary the names and social
security account numbers of individuals, the Secretary shall
disclose to such State agency information on such individuals
and their employers maintained in the National Directory of
New Hires, subject to this paragraph.
``(B) Condition on disclosure by the secretary.--The
Secretary shall make a disclosure under subparagraph (A) only
to the extent that the Secretary determines that the
disclosure would not interfere with the effective operation
of the program under this part.
``(C) Use and disclosure of information by state
agencies.--
``(i) In general.--A State agency may not use or disclose
information provided under this paragraph except for purposes
of administering a program referred to in subparagraph (A).
[[Page H5670]]
``(ii) Information security.--The State agency shall have
in effect data security and control policies that the
Secretary finds adequate to ensure the security of
information obtained under this paragraph and to ensure that
access to such information is restricted to authorized
persons for purposes of authorized uses and disclosures.
``(iii) Penalty for misuse of information.--An officer or
employee of the State agency who fails to comply with this
subparagraph shall be subject to the sanctions under
subsection (l)(2) to the same extent as if such officer or
employee was an officer or employee of the United States.
``(D) Procedural requirements.--State agencies requesting
information under this paragraph shall adhere to uniform
procedures established by the Secretary governing information
requests and data matching under this paragraph.
``(E) Reimbursement of costs.--The State agency shall
reimburse the Secretary, in accordance with subsection
(k)(3), for the costs incurred by the Secretary in furnishing
the information requested under this paragraph.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
California (Mr. Herger) and the gentleman from Maryland (Mr. Cardin)
each will control 20 minutes.
The Chair recognizes the gentleman from California (Mr. Herger).
General Leave
Mr. HERGER. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days in which to revise and extend their remarks and
to include extraneous material on H.R. 3463, the bill now under
consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from California?
There was no objection.
Mr. HERGER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I am pleased to be here today with my colleagues from
the Committee on Ways and Means, the gentleman from New York (Mr.
Houghton), who is chairman of the Subcommittee on Oversight, and the
ranking members of the Subcommittee on Human Resources and Subcommittee
on Oversight, the gentleman from Maryland (Mr. Cardin) and the
gentleman from North Dakota (Mr. Pomeroy).
We are here, Mr. Speaker, to consider bipartisan legislation to stop
businesses and those who advise them from wrongly manipulating their
corporate structure to avoid paying their fair share of State
unemployment taxes, a practice that has been dubbed SUTA dumping.
Not only does the bill before us today, H.R. 3463, bring a halt to
the fraudulent and abusive practice of SUTA dumping, it will help
strengthen the Nation's unemployment compensation system by requiring
businesses that are shirking their tax responsibilities to pay up.
At the June 2003 joint hearing before the Subcommittee on Human
Resources and the Subcommittee on Oversight, the U.S. General
Accounting Office reported that in three-fifths of the States, laws are
insufficient to prevent SUTA dumping. The GAO testified that millions
of dollars already have been lost, $120 million in just 14 States over
a 3-year period. This loss must be made up by higher taxes on other
employers or by lower benefits for unemployed workers.
In my home State of California, estimates of the loss from SUTA
dumping run as high as $100 million. In North Carolina, where State
legislation already has been enacted to stop SUTA dumping, $6.8 million
additional unemployment tax dollars have been collected from 10
companies that should have been making those payments all along.
Another 50 companies are being investigated, and up to 100 companies
are suspected of wrongdoing. This is just in one State. This is
unacceptable.
The bill before us today addresses this problem by amending Federal
law to direct States to have effective provisions in their State laws
to prevent SUTA dumping. It also gives State unemployment program
officials access to data in the National Directory of New Hires to
ensure unemployment benefits are not wrongly paid to those who are
working.
The Congressional Budget Office estimates that H.R. 3463 would save
about $.5 billion over 5 years. However, saving money is not the only
reason for us to be passing this bill today. When businesses wrongly
minimize or even avoid paying their proper share of State unemployment
taxes, they undermine the Nation's unemployment benefits system. They
also unfairly dump their costs onto other employers.
And it is not just honest employers who lose when their competitors
pay less in taxes than they should and gain an unfair competitive
advantage by SUTA dumping. Employees lose if employers are more willing
to lay them off or delay hiring them back, since they know higher
employer taxes will not follow the layoffs. States lose as their trust
fund balances fall, possibly leading to expensive borrowing, tax
increases, and benefits cuts. The economy loses as businesses fold or
fail to start and workers are laid off or never hired.
It is time for us to stop this practice. I ask my colleagues to join
me today in passing H.R. 3463, the SUTA Dumping Prevention Act.
Mr. Speaker, I reserve the balance of my time.
Mr. CARDIN. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I join my colleague, the chairman of our subcommittee,
the gentleman from California (Mr. Herger), in support of this
legislation. It is important legislation that will save our States
money and help the employers in our State that are playing according to
the rules. This bipartisan bill will help ensure all employers pay
their fair share into our Nation's unemployment compensation system,
which provides benefits to laid-off workers.
I am pleased to have worked with the gentleman from California (Mr.
Herger) in developing this legislation, as well as the chairman of the
Subcommittee on Oversight, the gentleman from New York (Mr. Houghton),
the ranking member of the Subcommittee on Oversight, the gentleman from
North Dakota (Mr. Pomeroy), and the gentleman from Michigan (Mr.
Levin), who serves also on our Subcommittee on Human Resources.
Mr. Speaker, this bill has the support from organizations
representing both workers and business.
Unemployment tax payments are determined in part by a company's
experience rating, meaning their experience with laying off workers.
Companies whose employees receive fewer unemployment benefits have
lower tax rates, while those employers whose workers receive benefits
more frequently have higher tax rates. To artificially reduce their
unemployment taxes, some companies engage in a practice known as State
Unemployment Tax Assessment dumping, or SUTA dumping, which allows them
to lower their experience rating.
Examples of this practice include the transfer of a company's
employees to a fake shell company which has a new and lower tax rate.
As a result of this practice, the State loses millions of dollars in
proper tax payments and, therefore, has to increase the tax rates on
the vast majority of employers who are playing according to the rules.
In fact, the Department of Labor has said SUTA dumping eliminates the
incentive for employers to keep employees working and returning
claimants to work as soon as possible, and it unfairly shifts costs to
other employers.
Mr. Speaker, according to a General Accounting Office survey, three-
fifths of the States believe their laws are insufficient to prevent
SUTA dumping. That is the reason, Mr. Speaker, we need to act. Fourteen
States have reported they have identified specific SUTA dumping cases
within the last 3 years, with losses from these cases exceeding $120
million.
H.R. 3463 would require States to impose meaningful penalties on
employers that engage in SUTA dumping by shifting employees from one
shell company to another. More specifically, the bill would require
that a company's experience ratings for unemployment taxes follow that
portion of the business that is transferred to another company if both
corporate entities are ``under substantially common ownership,
management or control.''
Additionally, the bill would require penalties be imposed on
financial consultants who market SUTA dumping as a tax shelter.
Finally, the bill includes a provision allowing State unemployment
agencies access to the National Directory of New Hires, which is used
to track employment for the purposes of collecting child support. State
agencies would use this information to prevent fraud, such as
individuals both working and claiming unemployment benefits.
[[Page H5671]]
Mr. Speaker, I urge my colleagues to support this legislation
designed to ensure fair and accurate payment to our Nation's
unemployment compensation system.
Mr. Speaker, I reserve the balance of my time.
Mr. HERGER. Mr. Speaker, I yield 5 minutes to the gentleman from New
York (Mr. Houghton), a member of the Committee on Ways and Means and
the chairman of the Subcommittee on Oversight.
Mr. HOUGHTON. Mr. Speaker, I thank the gentleman from California (Mr.
Herger) and the gentleman from Maryland (Mr. Cardin). I am delighted to
be here, and I rise in strong support of this particular piece of
legislation, the SUTA Dumping Prevention Act.
SUTA is State Unemployment Tax Act. That is what it stands for. When
I think of dumping, I usually think of the dumping of a product, but
the concept here is really the dumping of cost. This is very important
legislation because it provides the States with enforcement mechanisms
they are going to need to prevent certain businesses who want to avoid
paying their fair share of State unemployment taxes.
Now, last year, in June, the Subcommittee on Oversight held a joint
hearing with the Subcommittee on Human Resources, with the gentleman
from California (Mr. Herger), and explored the dumping issue. We had a
lot of expert witnesses, and they informed us about the fraud that is
being conducted by a variety of unscrupulous business owners. So we
learned that some employers have developed sophisticated schemes
manipulating their corporate structure to avoid paying their fair
amount of unemployment compensation taxes.
{time} 1145
This bill prevents that.
The bill makes several improvements in current law. State
unemployment benefit officials will be provided with access to national
data in the National Directory of New Hires to ensure unemployment
benefits are not erroneously paid to those who are already employed.
The bill also is going to save taxpayer money, and that is important.
According to the Congressional Budget Office, when the bill becomes
law, the government is estimated to save over $500 million over a 10-
year period. How does this happen? The savings are going to come from
increased tax collections of businesses that have avoided paying the
unemployment taxes to begin with. So these additional revenues are
going to be added to State unemployment benefit accounts, leading to
lower tax rates when balances rise. This means that the companies who
are the good guys, who have paid their fair share of taxes, will see
lower tax rates. That is, of course, obviously what we want.
Finally, Mr. Speaker, this bill is bipartisan. We have worked closely
with our friends on the other side of the aisle, particularly the
gentleman from Maryland (Mr. Cardin), the gentleman from North Dakota
(Mr. Pomeroy), the gentleman from Michigan (Mr. Levin), the gentleman
from Washington (Mr. McDermott), and the gentleman from Texas (Mr.
Sandlin). So I want to thank them for their efforts also in helping to
bring this legislation to the floor.
Congressional oversight is essential. It is being undermined. The
bill fixes this by cutting out waste. I urge a ``yes'' vote on H.R.
3463.
Mr. CARDIN. Mr. Speaker, I yield such time as he may consume to the
gentleman from Michigan (Mr. Levin), a member of the Subcommittee on
Human Resources and one who has worked very hard on this legislation.
(Mr. LEVIN asked and was given permission to revise and extend his
remarks.)
Mr. LEVIN. Mr. Speaker, I thank the gentleman from Maryland for
yielding me this time. To the gentleman from California (Mr. Herger),
the gentleman from New York (Mr. Houghton), and others who have worked
on this, I am pleased to join them in supporting this legislation to
end a form of tax fraud called SUTA. I think everybody should
understand it is State Unemployment Tax Account dumping.
I am proud that a company in my home State of Michigan, Kelly
Services, was one of the first to blow the whistle on this abusive
practice. Really, Kelly Services and their leadership played an
indispensable role, and I think it is good for the free enterprise
system of this country when people within the business community step
up and say, Something is wrong; some others are not playing by the
rules.
One of the fundamental principles of the unemployment compensation
system is that each employer pays their fair share based on their
company's layoff patterns. Employers who frequently lay off workers pay
higher taxes. This ensures, first of all, fairness; and also it creates
a financial incentive for employers to avoid layoffs whenever possible.
But in recent years, some companies, aided by unscrupulous accounting
firms, used loopholes in the law to make it appear that their layoff
rates were much lower than they actually were. We are told that these
practices are not technically illegal, but they should be; and this
bill will ensure that they are.
In Michigan alone, SUTA dumping costs the trust fund 50 to $100
million a year at a time when pressure on our trust fund is already
great. Employers who dump make it more difficult for Michigan to
increase benefits or help the long-term unemployed, and they drive up
the tax rate for honest employers, making it difficult for them to hire
new workers.
There is never a good time for employers to avoid paying their fair
share, but this is a particularly bad time to cheat the unemployment
trust fund. Unemployment is 5.6, nearly double the unemployment rate at
the end of 2000. The economy has 1.8 million fewer private sector jobs
and 2.7 million fewer manufacturing jobs than it had in 2000. The
number of job openings in the Midwest is down by 44 percent since the
end of 2000. People in Michigan and across the country are out of work
through no fault of their own and have nowhere else to turn except
State unemployment programs.
State unemployment trust funds have taken a beating. Thirty-one State
unemployment trust funds do not currently have enough funds to
withstand another recession. Four States, Minnesota, New York, Missouri
and North Carolina, currently do not have enough funds in their State
trust funds and have borrowed from the Federal trust fund.
I urge my colleagues to support this legislation to strengthen our
State unemployment trust funds, help workers, and maintain fairness in
the system.
I want to say one other thing. On an earlier bill, there was much
talk about bipartisanship, and we have heard it again today on this
bill. There was bipartisanship on this bill. It is sad there was not
when it came to extension of Federal unemployment benefits. There was
none. The Republicans, this majority, in essence, they collaborate with
us when they think we will agree with them; but if they think we will
disagree, there is no bipartisanship in a meaningful sense.
The extended program, the failure to continue it, has had a major
impact on the lives of hundreds of thousands of families in the United
States of America. I salute the gentleman from Maryland (Mr. Cardin)
for his tireless efforts over these months to try to get the
Republicans to work with us on this. The highest number of people have
exhausted all of their benefits on record in this country. I got this
figure, and I want everybody to understand it, the number who have
exhausted their benefits without finding work since December of last
year, 1.7 million people.
My plea is, if we are going to be bipartisan on SUTA, and it is good
that we are going to do so and, I hope, pass this overwhelmingly, I
urge that the majority here take another look and think about some
bipartisanship, about the lives of millions of people in this country
who are unemployed through no fault of their own and cannot find a job.
Mr. HERGER. Mr. Speaker, I yield myself such time as I may consume.
I would like to point out to the gentleman from Michigan, Congress
provided extended unemployment benefits for 2 years in the wake of the
2001 recession and terrorist attacks. We also provided record Federal
funds for States to assist the unemployed which included $1.1 billion
to 330,000 workers in the gentleman from Michigan's own State.
[[Page H5672]]
I would like to thank my colleagues for joining me here on the floor
today to discuss this important bipartisan legislation. I urge all of
my colleagues to support the SUTA Dumping Prevention Act to stop fraud
and abuse and make our unemployment compensation system stronger and
fairer to all. This is good bipartisan legislation. Let us pass it
today.
Mr. Speaker, I reserve the balance of my time.
Mr. CARDIN. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, as I indicated earlier, this is an important bill. This
is a bill that will save millions of dollars for our unemployment trust
accounts at the State level and will work to the advantage of workers
and businesses that are playing according to the rules so that they pay
their fair rates into the unemployment trust accounts. This is
important legislation, it is bipartisan legislation, and it is
legislation I hope my colleagues will all support.
I do, though, want to underscore the point that the gentleman from
Michigan made, and that is there are other issues in regard to the
unemployment insurance funds that we should be dealing with. I would
hope that we could use this model of working together to deal with the
extension of unemployment benefits. Let me just remind my colleagues
that we have record amounts of people who have exhausted their State
unemployment benefits without finding employment, the highest in the
history of keeping these records. Yet, in this downturn in our economy,
we provided Federal unemployment benefits for one of the shortest times
and for the number of shortest weeks in recent times when we have had
problems with our economy. That is wrong. We should have done better. I
hope that we will do better.
Secondly, let me point out there are other issues in regard to the
unemployment accounts that we need to take a look at. The Department of
Labor 3 years ago suggested that 80,000 workers may be denied
unemployment benefits every year because they are misclassified as
independent contractors. That is another issue that I would hope that
we could look at in order to properly preserve these funds. And then
let me also suggest that several years ago the stakeholders in our
unemployment compensation system came together with certain
recommendations that dealt with the tax, that dealt with part-time
workers, that dealt with using the most recent earnings quarters. We
have not yet acted on those recommendations which could again provide
meaningful benefits to people who are entitled to it, who pay into the
trust accounts and are being denied benefits today because of the
Federal rules.
I would urge my colleagues to support this legislation, but to
understand we have a lot more work that needs to be done in regard to
our unemployment compensation system, including the fact that we
inappropriately failed to extend benefits to unemployed workers during
this economic downturn.
Mr. Speaker, I yield back the balance of my time.
Mr. HERGER. Mr. Speaker, I yield myself the balance of my time. Just
in response to my good friend from Maryland, thanks to the Republican
tax cuts, the economy is strong and getting stronger. The economy
recently grew faster than any time in the past 20 years. In the past 4
months, 1 million new jobs were created. The unemployment rate dropped
in the last year from 6.3 percent to 5.6 percent. Today's unemployment
rate is lower than the average during the 1970s, the 1980s, and the
1990s. Instead of engaging in partisan rhetoric, we should focus on the
bipartisan bill before us which will strengthen the unemployment
compensation system and make it fairer to all.
In closing, Mr. Speaker, I would like to read from a fax that I just
received from the Office of the President of the United States. It is a
Statement of Administration Policy in which it states: ``The
administration strongly supports House passage of H.R. 3463, the SUTA
Dumping Prevention Act, which would strengthen the financial integrity
of State unemployment insurance (UI) programs. The bill would support
the President's management agenda by saving hundreds of millions of
dollars in fraudulent UI benefit payments and reduce tax avoidance by
employers. The administration urges Congress to act on these
commonsense reforms to promote fairness and reduce erroneous
payments.''
Mr. Speaker, I urge all my colleagues to support this legislation.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Miller of Florida). The question is on
the motion offered by the gentleman from California (Mr. Herger) that
the House suspend the rules and pass the bill, H.R. 3463, as amended.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________