DWS proposes $20m unemployment tax hike

SANTA FE (AP) - Businesses could pay $20 million in higher taxes under a proposal by Gov. Bill Richardson's administration to shore up the program that provides unemployment benefits to jobless New Mexicans.

The unemployment insurance trust fund will run out of money by next year, triggering an even larger tax increase for employers, if the Legislature and governor don't agree on a rescue plan during the legislative session.

The fund is being drained because of rising unemployment during the past year. About 75,000 New Mexicans were unemployed in November, an increase of about 31,000 from a year ago.

The Department of Workforce Solutions outlined the administration's unemployment tax proposal last week to a Senate committee.

The agency recommends that employers pay higher contributions averaging 22 percent. That will provide $20 million.

The average tax payments by a business for each of its employees would go to $190 a year in July, up from $156, if the Legislature approves the administration's proposal.

The department also proposes to transfer $100 million from a reserve account to help replenish the unemployment trust fund. The reserve account has received a share of the taxes that employers pay.

If no legislation is enacted to rebuild the unemployment fund, employers will be hit with a much larger tax increase than what's proposed by the department, according to Workforce Solutions Secretary Ken Ortiz.

Under state law, the current unemployment tax rates are locked into place through this year. After that, tax rates will automatically increase as needed to replenish the fund. If that happens, the department estimates average payments by businesses will go to $529 for each employee, a 239 percent increase.

"That's the last thing we want to do," Ortiz said Monday in an interview.

Employers pay unemployment taxes on the first $20,900 of a worker's wages. Rates vary for businesses, depending on their employment history.

There was a balance of $230 million in the unemployment fund at the start of the month and about $1 million a day is being paid to jobless New Mexicans. If the fund drops too low, the state will be forced to get a loan from the U.S. Labor Department to cover unemployment benefits. The state would have to repay the loan, with interest.

Terri Cole, president of the Greater Albuquerque Chamber of Commerce, said the department's proposal is better than the huge tax increase that will take effect if legislation isn't approved this session.

"It is a bad time for everyone ... but it is the right time to be coming up with solutions that hurt the business community the least. It seems to me this solution does that," Cole said.

But businesses aren't happy with the prospect of higher taxes.

"We've got to start supporting the business people who are creating the jobs. If we keep pounding them with taxes and health care and everything else, they don't have any incentives to create jobs," said Carol Wight, CEO of the New Mexico Restaurant Association.