Iowa businesses would pay less in unemployment taxes under a bill that advanced through a Senate committee Tuesday.
Employers pay unemployment insurance taxes to fund unemployment benefits that are paid to people who get laid off from their jobs.
The unemployment tax cuts were first proposed by Gov. Kim Reynolds last year. She has said that Iowa’s unemployment trust fund has too much money in it — an all-time high of $1.8 billion — and she wants to provide more tax relief for businesses in the state.
Reynolds asked lawmakers to lower the top unemployment tax rate from 7% to 5.4%, reduce the number of tax tables, and decrease the taxable wage base by half. According to her office, Reynolds’ proposal would save businesses nearly $1 billion over five years.
Gov. Kim Reynolds' office says the tax cut proposal would save businesses nearly $1 billion over five years.
At a subcommittee hearing Tuesday morning, Ryan Sempf with the Quad Cities Chamber of Commerce said the bill is an opportunity to improve Iowa’s competitiveness with neighboring states.
"This is one of the few places where we actually have an opportunity to really continue to move the needle on that, so [we] appreciate this bill and hope it moves forward this year,” he said.
Peter Hird with the Iowa Federation of Labor AFL-CIO said the bill won’t benefit working people.
“In 2022, [unemployment] benefits for workers were cut, cutting the maximum number of weeks that they can collect from 26 to 16,” he said. “This bill, basically, is a result of those cuts, and it’s going to turn into savings for nearly a billion dollars for Iowa employers.”
The bill says any savings an employer receives as a result of the unemployment tax cuts should go toward paying their employees, or should be used as an alternative to unemployment benefits during periods of seasonal unemployment.
Hird said the bill should include a mechanism for the state to enforce that provision.
The Senate Ways and Means Committee voted to advance the bill Tuesday afternoon.
Sen. Thomas Townsend, D-Dubuque, opposed the bill. He said he is concerned about what could happen if there is an economic recession and lots of people start getting unemployment benefits.
“If they do get laid off and that fund starts going down, is that going to be cutting benefits, or is that going to be increasing that premium again for employers?” Townsend asked. “And I would argue that, when the economy is going down and they’re laying people off, [that] would not be the right time to increase the insurance premium on their unemployment.”
Sen. Adrian Dickey, R-Packwood, said he also wondered if the state’s unemployment fund would have enough money in it if another event like COVID occurs. He said Iowa Workforce Development concluded that the state would need about $700 million to be solvent if there were mass layoffs again.
“So moving a $2 billion balance down to $1 billion is still very, very fiscally responsible in the event that another catastrophe like COVID were to take place,” Dickey said.
Surcharge provision added to governor’s bill
When the bill initially went through the Senate Workforce Committee last week, Dickey led an effort to amend Reynolds’ bill by adding a surcharge targeted to businesses that have seasonal layoffs.
Molly Severn, the governor’s legislative liaison, said Reynolds does not support that amendment. She said the surcharge on an estimated 7,500 businesses would not come close to covering the gap between benefits paid out and taxes paid in.
“Those 7,500 businesses are mostly small and medium-sized businesses here in the state of Iowa,” Severn said. “Other states with surcharges only use them for solvency of the fund or to repay federal debt, plus states with a surcharge are negatively impacted in their ranking by the Tax Foundation no matter the purpose of that surcharge.”
A workforce development official said including the surcharge would cause a one-year delay in implementing the tax cuts for businesses.
Dickey continued to support the surcharge, which would have businesses pay more in unemployment taxes if their employees received 25% more in unemployment benefits than what the employer paid into the system.
“If a business simply had a bad year, the surcharge would not affect them,” he said. “With the three-year average provision, the only businesses that would be subject to the surcharge are businesses that are using the unemployment system to subsidize their labor expenses on the backs of 92% of Iowa businesses.”
The bill is now eligible for a vote by the full Senate.
