Zeev's Turnips Talk Politics (ZTTP)

[BullNBear52]

What McConnell won't tell you is that he is lying. Federal unemployment extension benefits are are always funded by employers at the state level.

There are two sources for unemployment. The state's unemployment trust fund and the federal trust fund (FUTA).

When a state exhausts their trust fund they borrow from FUTA. When FUTA exhausts their fund they borrow from Treasury with interest.

Employers are granted a credit on their state unemployment taxes (SUI) as long as they haven't dipped into the FUTA fund beyond their limits.

Once that happens the credit goes away. MI for one is already one state that has lost the FUTA credit.

Right now over 30 states trust funds are broke and so is FUTA. Which means every extension granted to the states makes FUTA have to borrow more from Treasury to fund the state extension.

How serious is the problem? Projections are that state SUI accounts and FUTA won't be repaid until 2013-4. Employers pay into both.

FUTA taxes at the employer level are a pathetic $56 per employee.

For 2009 and 2010 the FUTA tax rate is 6.2%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different. Generally, you can take a credit against your
FUTA tax for amounts you paid into state unemployment
funds. This credit cannot be more than 5.4% of taxable Reporting FUTA tax. Use Form 940, Employer’s Annual
wages. If you are entitled to the maximum 5.4% credit, the Federal Unemployment (FUTA) Tax Return, to report
FUTA tax rate after the credit is 0.8%.

http://www.irs.gov/pub/irs-pdf/p15.pdf

Are you starting to get the picture? If I'm an employer in MI and I now have lost my FUTA credit I'm now paying $434 per employee.

And then I still need to deal with the state UI tax. And as the economy gets worse the wage base increases and so does the tax rate.

In short McConnell is a lying sob. Unemployment taxes are always funded by the employer. They can grant extensions till the cows come home but employers still need to pay for them.