By Eric Bradner, Evansville Courier & Press
INDIANAPOLIS - Gov. Mitch Daniels says he will ignore business groups' wishes and sign into law a bill that raises employer taxes to fix Indiana's bankrupt unemployment insurance fund.
The Indiana Chamber of Commerce is urging Daniels to veto the plan to bolster a fund paying out hundreds of millions of dollars more than it is taking in because it relies only on higher taxes on businesses, rather than including cuts in jobless benefits. The tax hike, business leaders said, could result in layoffs.
But on Thursday, Daniels said although the plan is imperfect, it will help and he will sign it.
"It doesn't fix the problem, but it's some progress," Daniels said.
The plan will result in significant tax increase for businesses that routinely lay off workers, but will lower taxes for small businesses that never do.
It will phase in the new tax rates over the next two years.
Currently employers pay between 1.1 percent and 5.6 percent on the first $7,000 a worker earns, or between $77 and $92 per year.
In 2010 that will increase to between 0.7 percent and 9.5 percent on a wage base of $9,500. That's between $66.50 and $902.50.
Then in 2011, that again jumps to between 0.75 percent and 10.2 percent on the first $9,500, leaving the final range at between $71.25 and $969 each year.
Unemployment benefits - currently a maximum of $390 per week and an average of $298 per week - will stay the same.
The plan also includes provision to increase Department of Workforce Development oversight and ensure no one who isn't eligible for benefits is drawing them.
Sen. Brandt Hershman, R-Wheatfield, said 40,000 small businesses in Indiana never tap into the fund and it makes sense for them to be exempt from higher taxes.
"Just as high-risk drivers pay higher premiums for their auto insurance than those motorists who rarely have accidents, businesses that are more likely to lay off workers should shoulder more of the burden," Hershman said.
A lead architect of the plan, Rep. David Niezgodski, D-South Bend, said the phased-in tax hikes and new rate schedule that keeps payments low for employers who never lay off workers will "make sure Indiana is open for business."
Niezgodski predicted the plan would raise $617 million per year in new tax revenue and at least $300 million per year more in savings due to the oversight measures.
Some lawmakers were less optimistic during floor debate over the plan Wednesday night. Rep. Matt Bell, R-Avilla, called it "the first step in a series of perpetual tax increases on businesses because we're not solving the problem tonight."
Lawmakers aren't sure how long it could take to restore the state's unemployment fund to solvency. Indiana has borrowed nearly $800 million from the federal government since late last year to continue paying unemployment claims.
The fund wasn't always in trouble. In 2000, the state's unemployment fund had a surplus of $1.6 billion. But lawmakers raised benefit payments for the unemployed and lowered employer premiums, draining the account.
The Associated Press contributed to this report.