President’s Budget and UI Taxable Wages

The Wall Street Journal reports that the President’s budget (to be released next week) will include a provision that would increase the level of wages subject to the federal unemployment tax, as a way to “restock strained state unemployment-insurance trust funds.”  Currently, the taxable wage base is set at $7,000; the President would increase that to $15,000 as of 2014.

According to the WSJ, federal unemployment tax rates would be reduced so as to not increase federal revenues under this proposal.  Instead, the effect of this change would be to increase the taxable wage base in the 27 states that (a) automatically adjust their unemployment insurance (UI) taxable wage base to match that of the federal government and (b) currently have taxable wage bases under $15,000.  (Six states currently have taxable wage bases below $15,000 but do not automatically match the Feds–see Table 2-1 in this Dept. of Labor comparison.)

When you compare the states that would be affected with the states whose UI trust funds are in the most trouble, there’s really not much correlation.  For example, Maine has a current taxable wage base of $12,000 and automatically adjusts to the federal base.  Its UI trust fund as a percent of total wages is the third highest in the the country.  Conversely, Minnesota has a current taxable wage base of $27,000 and would not be affected by this proposal.  But its UI trust fund as a percent of total wages is the second worst in the country.  Consequently, this proposal doesn’t appear to really get at the stated problem.

Washington, by virtue of having the highest taxable wage base in the country ($36,800), would not be affected by this proposal.