[Congressional Record (Bound Edition), Volume 150 (2004), Part 11]
[House]
[Pages 15510-15513]
[From the U.S. 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--

[[Page 15511]]

       (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).
       ``(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.

[[Page 15512]]

  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.
  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. 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.

[[Page 15513]]

  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.
  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.

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