Federal unemployment tax for employers to expire quietly

By The Associated Press

WASHINGTON – Nearly every private employer in the U.S. will get a tax cut today.
It won’t affect workers’ paychecks. But the expiration of a 35-year-old “temporary” unemployment tax – about $14 a year per worker – will mean real money for some big companies at a time when President Barack Obama is pushing Congress to raise taxes on businesses by closing some loopholes.
Amid a fierce debate over whether higher taxes should be part of a deal to reduce annual deficits – in exchange for letting the government go further into debt – the small cut in federal unemployment taxes has received little attention on Capitol Hill. Most employers probably don’t even know they are getting it, especially those who are being hit with bigger increases in state jobless taxes.
But business groups say every little bit helps, whether you’re a small employer struggling to make a payroll or a huge company like Wal-Mart, with more than 1.4 million U.S. workers. That’s nearly $20 million a year in savings for Wal-Mart.
Some worry that reducing federal unemployment taxes while the jobless rate hovers above 9 percent will add to the system’s financial problems. But the tax cut will save businesses nationwide more than $14 billion over the next decade, according to congressional estimates.
“The death of any tax on jobs, no matter how big or small, is a historic moment and one to be celebrated,” said Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes – once in place, they are unlikely to ever go away.”
The expiring levy was a 0.2 percent surtax on the first $7,000 of a worker’s wages. Getting rid of it effectively lowers the federal unemployment tax from 0.8 percent to 0.6 percent for most employers. That’s a decrease from $56 a worker to $42 a worker each year – a 25 percent cut.
The tax is paid by nearly all private employers, who also must pay state unemployment taxes. Some services performed by employees of religious or charitable organizations are not subject to federal unemployment taxes. Other workers who are paid by commission also are exempt.
The surtax was first imposed in 1976 to help pay for federal unemployment benefits distributed in the 1970s. The tax was supposed to be temporary, but like a lot of short-term measures in Washington, it endured and was extended at least eight times, under both Republican and Democratic presidents.