National Taxpayers Union Foundation has announced an ambitious new policy education and reform project for payroll tax and unemployment insurance at the state level around the country. While federal payroll taxes are known for funding programs like Social Security and Medicare, the biggest state use of payroll taxes is to fund unemployment insurance programs. But a new NTUF analysis finds that UI programs are so riddled with waste, administrative inefficiency, and fraud that every state needs to rethink how their programs are being run.
NTUF’s new educational program for state policymakers includes the “Payroll Tax 101 and Toolkit” outlining how payroll taxes are used and how many state unemployment insurance programs can be reformed. The guide is an explainer of the current status quo of the payroll tax at the state and federal level in the United States, and the ways that specific states can address their current structural problems, including:
- A sliding scale for benefits, indexed on the unemployment rate.
- Require a skills assessment at the time of initial application.
- Cross-reference and cross-match applicants with other databases to verify eligibility and with financial institutions to avoid fraudulent payments.
- Allow independent contractors the option of participating in the system.
- One-time bonuses for locating long-term employment.
- This list takes a new look, after what we learned during challenging times, and targets improving the efficiency and effectiveness of unemployment in the future.
The toolkit provides reforms and case studies of states that improved their payroll and UI systems to make specific state-by-state recommendations. For example, according to the Department of Labor, Virginia’s improper UI payments rate is more than double the national average. A simple recommendation from NTUF’s Payroll Tax 101 toolkit could help to resolve Virginia’s problems. Other states analyzed in the NTUF toolkit are New York, Florida, California, Illinois, Georgia and more.
“Using our analysis and brand new toolkit, we are working to educate state policymakers so they can adopt needed much-needed reforms that will save small businesses and workers money,” said Senior Vice President of State Affairs (and former state Senator) Leah Vukmir, one of the report’s authors. “This isn’t a red state or blue state issue. Policymakers and state legislators of both political parties need to take a hard look at their payroll tax and unemployment insurance systems, because reforms are desperately needed all across the country.”
As states gear up for their 2024 legislative sessions, the NTUF toolkit will be part of a “roadshow” that will crisscross the nation with these case studies and reform options to educate and advocate for needed reforms.
“As a business owner, I understand how payroll taxes and inefficient state unemployment systems can affect businesses’ bottom lines and hiring practices," said State Affairs Director Jess Ward, a co-author on the project. "Despite the high costs for employers and employees, state policymakers often overlook reforming this tax — NTUF hopes to change that, and we stand ready to help them learn more and find better ways to protect taxpayers.”
For more information on NTUF’s new state payroll tax reform project or to talk with one of the team members leading the project, please contact NTUF Vice President of Communications Kevin Glass at 703-299-8670 or at kglass@ntu.org.