Oregon businesses hurt by the pandemic could see their tax increases eased under a bill lawmakers have passed in Salem. House Bill 3389 received bipartisan support and now goes to Gov. Kate Brown for her signature.

The bill changes how the state makes sure there is enough money in its unemployment insurance trust fund. The trust fund has an important role: It pays workers benefits when they get laid off. When the fund gets low enough, employers’ payroll taxes go up to replenish it.

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More than 120,000 Oregon employers saw their unemployment tax rates rise this year, even as the pandemic raged on.

And those tax increases weren’t evenly distributed.

Businesses forced to lay off staff en masse, such as restaurants and barbershops, faced some of the biggest tax hikes. Large layoffs meant those workers used the unemployment system more than workers from other industries. That reliance threatened to translate into larger tax increases, over time, for the employers who let them go.

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In normal times, this “you use it, you pay for it” framework is par for the course. But the pandemic was anything but normal. Lawmakers and business leaders argued that employers shouldn’t be forced to pay higher taxes because of public health closures beyond their control.

The new bill seeks to soften the tax blow in several ways. (You can read a more detailed breakdown here.)

  • It allows some employers to defer or not pay part of their 2021 tax obligation.
  • It mandates that pandemic layoffs not be held against employers when determining their tax rates for 2022-2024.
  • It requires the state to essentially ignore 2020 and 2021 as it looks at past recessions to determine how much to save for the future. (That means employers would be charged enough to prepare for the unemployment levels of the Great Recession, not another coronavirus crisis.)
  • It shrinks the trust fund’s adequacy targets by about 10% overall.

The solvency of the state’s unemployment insurance trust fund through the pandemic has been a source of pride for the Oregon Employment Department. As of March, 20 states had borrowed more than $53 billion to pay regular unemployment benefits, according to the agency. Those states will incur interest that eventually gets charged to employers.

Agency acting director David Gerstenfeld has often warned against taking steps that would harm the solvency of Oregon’s trust fund. He applauded bipartisan efforts to protect the fund while providing employers relief.

“We feel that the adjustments in House Bill 3389 will still allow us to stay solvent, even during this recession,” he told lawmakers.

The agency has said the measure could save employers $2.4 billion through 2029. Even with the policy changes in the bill, the trust fund balance is expected to be $3.5 billion at the end of the 2021-2023 biennium.

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