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Economist Basu faults formula for unemployment tax

Maryland businesses next year will begin paying the lowest unemployment tax rate in four years, state officials announced Wednesday.

Anirban Basu, chairman and chief executive officer of Baltimore-based Sage Policy Group, said business owners might be better off if the state left the current rate in place for another year.

Both Basu and state officials agree that the fund is recovering after the recession resulted in increased claims. The possibility of an economic downturn related to the federal budget could result in additional claims and necessitate an increase to stabilize the unemployment insurance trust fund, Basu said.

“These types of policies are often made by looking at historic data and not predicting the future,” Basu said.

Basu said current federal job furloughs because of the continued government shutdown will likely exacerbate cuts from federal sequestration and result in an increase in unemployment claims for October. Additionally, the economic analyst said he expects that congressional gridlock will continue over federal spending and result in reductions in federal jobs.

“We’re so dependent on federal jobs in Maryland,” Basu said. “That’s really going to cause some turbulence for the state economy.”

Basu said state officials should make policy based on “the view from the windshield rather than the rearview mirror.”

David McGlone, acting assistant secretary for the state Division of Unemployment Insurance, said there is no leeway when it comes to setting the annual rate.

“It’s based on a mathematical formula,” McGlone said. “When the formula says ‘raise the rate’ we raise it and we decrease it when it says we should decrease it.”

Currently, the state unemployment trust fund balance is about $934.9 million. That’s still less than in 2009 when the fund balance was over $1 billion, McGlone said.

In that year, payouts on claims on the unemployment insurance fund reached about $25 million per week. State officials were required to increase unemployment insurance tax rates to the highest statutory levels. Those rates¬ of 2.2 percent to 13.5 percent on an employee’s first $8,500 in annual wages remained in place for three years.

Kimberly M. Burns, president of Maryland Business for Responsive Government, said the tax increases hurt businesses already struggling with the economy.

“It was a burden to employers who found themselves in a situation of losing employees where they had never lost one before and then seeing the rates increase dramatically in some cases,” Burns said.

The state lowered the rate for 2013 to between 1 percent and 10.5 percent.

The move to the lowest tier on unemployment insurance taxes starting Jan. 1 comes as the result of payouts on claims dropping to roughly $13 million per week, McGlone said.

Gov. Martin O’Malley, in a statement Wednesday, said the decrease was the result of an improving employment picture in the state.

Burns said state officials are taking credit for a rate reduction that would have happened anyway.

“The rates were raised with the expectation that when the trust fund balance improved the rates would go down,” Burns said. “They’re taking credit for lowering the rate, when by their own admission it would have lowered itself.”

Maryland’s unemployment rate stands at 7 percent for the month of August, the most recent statistic on the federal Bureau of Labor Statistics’ website.

Basu said the decrease in claims seen by the state could partially be the result of workers who have exhausted their benefits or simply stopped looking for work and filing claims.

McGlone said he had no way of determining how many unemployed workers have stopped looking for jobs.

“We don’t track unemployment, we just pay the claims,” McGlone said.