The following editorial first appeared in the Fairbanks Daily News-Miner:
Alaskans soon will get a little tax break because the state’s relatively good job market has made it sensible to cut the amount we pay for unemployment insurance.
Gov. Sean Parnell announced Monday that the unemployment insurance tax on the combination of the average rate paid by employers and employees would drop by 22 percent, from 3.32 percent this calendar year to 2.59 percent next. That will save Alaskans $89 million, according to a news release from the governor’s office.
This tax cut was made possible because the Legislature passed a bill sponsored by the governor during the session earlier this year. The governor’s legislation allows tax increases to be suspended when Alaska’s unemployment trust fund is solvent and removes restrictions on how far taxes can be cut.
Since the trust fund had a healthy $330 million balance on Sept. 30, the tax cut was a reasonable step. Basically, Alaska’s workers and employers are paying the fund enough to cover its bills because Alaska’s economy is in relatively good shape. That contrasts with other states, who are actually borrowing from the federal government to keep their funds afloat.
According to governor’s office, an employer in Alaska next year will pay an unemployment insurance tax of 1.97 percent on the first $37,400 of an employee’s wages. The rate this year is 2.64 percent. Workers in Alaska next year will pay 0.62 percent, down from 0.68 percent. (Alaska is just one of three states that imposes an unemployment tax on workers in addition to their employers.)
There’s also a federal tax. It’s on the books at 6 percent, but that’s cut to 0.6 percent as long as the state maintains its program up to federal standards, which Alaska does.
The federal-state unemployment insurance program was created back in 1935 to make temporary payments to people who lose their jobs and are looking for work. The payments range from $56 to $370 per week in Alaska, with another $24 for each child, up to three total. The benefits generally last about six months, although they’re sometimes extended.
The states administer the program and state taxes make up about 90 percent of the revenue nationally. Across the country, benefits totaling $74.4 billion went to 9 million people in the most recent federal fiscal year. Taxes fell about $20 billion short of that figure, though, which is why other state funds are in trouble.
Alaska’s fund, fortunately, is not in trouble. It’s healthy, and, when the fund is healthy, there is no reason to keep taxing Alaskans at the same rate just to continue to increase the account.