FUTA generally determines covered employment. FUTA also imposes certain requirements on the State programs, but the States generally determine individual qualification requirements, disqualification provisions, eligibility, weekly benefit amounts, potential weeks of benefits, and the State tax structure used to finance all of the regular State benefits and the State half of the extended benefits. Regular State benefits run up to 26 weeks and extended benefits last for up to 13 additional weeks. The extended benefits program was effectively supplanted by a temporary program of emergency unemployment compensation (EUC) from November 1991 through the end of 1993. This program extended benefits for 20 or 26 weeks, depending on the State's unemployment rate. EUC benefits were paid from EUCA originally, but were paid from general revenues after July 3, 1992. The Social Security Act provides for the administrative framework. Title III authorizes Federal grants to the States for administration of the State UC laws. Title IX authorizes the various components of the Federal Unemployment Trust Fund. Title XII authorizes advances or loans to insolvent State UC programs. The Unemployment Trust Fund The Federal unified budget accounts for all Federal-State UC outlays and taxes in the Federal Unemployment Trust Fund. The Unemployment Trust Fund has 59 accounts. The accounts consist of 53 State UC program accounts, the Railroad Unemployment Insurance Account, the Railroad Administration Account, and four Federal accounts. The status of each State program account at the beginning of fiscal year 1993 is shown in table 2. The 1990-1991 recession has weakened the fiscal condition of the unemployment trust fund. State debt rose from $0.6 billion at the beginning of fiscal year 1991 to $1.1 billion at the beginning of fiscal year 1993. Four States had Federal loans outstanding. Balances as a percent of total wages in a State declined in all but 11 State programs over the past 2 years. Balances as a percent of total wages in a State program ranged up to 9.7 percent in Puerto Rico. In the aggregate, reserves were at 1.1 percent of wages paid in the United States, down from 2.0 percent in 2 years. The four Federal accounts in the trust fund are: (1) the Employment Security Administration Account (ESAA), which funds administration; (2) the Extended Unemployment Compensation Account (EUCA), which funds the Federal half of the Federal-State extended benefits program; (3) the Federal Unemployment Account (FUA), which funds loans to insolvent State UC programs; and (4) the Federal Employee Compensation Account (FECA), which funds benefits for Federal civilian and military personnel authorized under 5 U.S.C. 85. Federal unemployment taxes finance the ESAA, EUCA, and FUA, but general revenues finance the FECA. Present law authorizes interest-bearing loans to ESAA, EUCA, and FUA from the general fund. TABLE 2.-STATE UNEMPLOYMENT TRUST FUND ACCOUNT BALANCES AT THE Total wages in the State for the 12 months ending March 31, 1992. 2 Beginning balances for 1993 are less than $0.5 million. Table 3 summarizes the financial status of the Federal accounts at the beginning of fiscal year 1993. The $7.2 billion balance in EUCA 2 years earlier was erased by the cost of the temporary EUC program. TABLE 3.-BALANCES IN THE FEDERAL ACCOUNTS OF THE UNEMPLOYMENT Total unemployment taxes on employers for a full-time, full-year worker earning the average wage in covered employment in 1991 is estimated to have averaged $194 or 9 cents per hour. The Federal portion is $56 or 3 cents per hour, and the average State portion is $138 or 7 cents per hour. Employer taxes vary substantially, however, depending on the State taxable wage base, State tax rates, and Federal credits. FUTA currently imposes a minimum, net Federal payroll tax on employers of 0.8 percent on the first $7,000 paid annually to each employee. The gross FUTA tax rate is 6.2 percent, but employers in States meeting certain Federal requirements and having no delinquent Federal loans are eligible for a 5.4 percent credit, making the minimum, net Federal tax rate 0.8 percent. Chart 1 shows the historical trend in the Federal taxable wage base from 1940 to 1991. The wage base was held constant at $3,000 until 1971 and has been increased three times since then. The chart also shows the erosion of the taxable wage base during the 1950's and 1960's relative to wage growth. If the taxable wage base had been indexed for wage growth since 1940, the current wage base would be over $50,000 instead of $7,000. Chart 2 depicts the historical trends in the statutory and effective Federal unemployment tax rates. The effective tax rate is FUTA revenue as a percent of total covered wages. The gap between the statutory and effective tax rates has been growing despite a constant 0.8 percent statutory rate since 1983 because the fraction of total covered wages subject to the FUTA tax has dropped to less than one-third. This trend resulted from the Federal taxable wage base remaining constant at $7,000 since 1983 while total covered wages grew by nearly 50 percent. |