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Show Unemployment Taxes Increase Despife Risini Employment Most I Hah employers are paying higher unemployment unem-ployment taxes this year despite a substantial rise in employment levels and wages. In some instances, in-stances, the tax rate increases in-creases amount to more than 27, and employers with the best employment experience have received re-ceived the largest tax boost. These were some of the facts brought out in a research study just completed by Utah Foundation, Foun-dation, the private tax research organization. Paradoxically, the unprecedented un-precedented increase in employment and wages experienced in Utah during dur-ing recent years is the major reason for the boost in the unemployment unemploy-ment tax rates in 1973, say Utah Foundation analysts. ana-lysts. Under Utah law, the unemployment tax rate schedule is determined deter-mined by the ratio of the unemployment reserve fund balance to total wages paid by all covered employers. Thus, when total wages rise faster than the reserve fund balance, higher unemployment unem-ployment taxes are automatically auto-matically applied. The report also notes that the law provides that the largest tax boosts . are to be applied to employers em-ployers with the best employment experience. This results in a reduction reduc-tion in the tax spread between be-tween high cost and low cost employers, and tends to eliminate part of the incentive to maintain main-tain employment stability stabil-ity under Utah's experience experi-ence rating plan. Continuation Contin-uation of this trend could lead to the eventual elimination elim-ination of experience rating for unemployment tax rate purposes in Utah. K o u n d a t i o n analysts point out that Utah has had an experience rating plan in effect since 1947. This plan provides reductions re-ductions from the standard stan-dard 2.7 unemployment tax rate for those employers em-ployers who minimize unemployment by maintaining main-taining favorable employment em-ployment and payroll experience. ex-perience. Over the years, these merit rating reductions have saved Utah employers more than $185 million. In 1972 alone, the reductions from the standard 2.7 rate amounted to $12.2 million. One reason for the present unemployment finance problem in Utah, according to Utah Foundation Foun-dation analysis, is that unemployment benefits are tied toan ever-rising wage level, while the taxes required to finance the program are pegged to a fixed wage base of $4,200 per year. Thus, w ith benefit amounts rising ris-ing but taxes limited toa more -or -less stable wage base, the average tax rate needed to finance fi-nance the program must increase. The present $4,200 wage base was established es-tablished by the 1963 Utah Legislature. Prior to that time, the' wage base in Utah was $3,000. An advisory Council to the Department of Em-ployment Em-ployment Security has recommended that the taxable wage base be raised in 1970 and revised re-vised every fourth year thereafter- in order to Keep up with rising wage levels. The Advisory Council alos recommended recom-mended that tax schedules sched-ules be devised which will maintain the reserve fund at least at its present pre-sent level and that the reserve fund ratio not be allowed to go below the range of 2.0 to 2.2 of total wages. At the close of the 1972 calendar year the reserve fund ratio was 2.7C of total wages. T h e s e recommendations recommenda-tions of the Employment Security Advisory Council Coun-cil were submitted to the Utah Legislative Council for further study prior to the 1975 session of the Utah Legislature. At that time the Utah Legislature Legis-lature will have to take some action if the experience ex-perience rating principle is to be retained in the Utah program. Failure of the Legislature to act would result in the wage base remaining at the present $4,200 level but would cause the tax rates to continue to rise. Eventually Even-tually all employers in the state would be paying the standard 2.7 rate, and for all practical purposes, pur-poses, experience rating in Utah would cease to exist. |