New Jersey Republicans Seeks To Offset $1B Payroll Tax Hike

By Christian Wade | The Center Square contributor, The Center Square New Jersey

April 28, 2023

(The Center Square) — New Jersey businesses will likely be saddled with more than $1 billion in new payroll costs in coming years to help the state replenish a fund that pays out jobless benefits.
During a budget hearing on Thursday, the state Department of Labor told lawmakers that New Jersey employers would be hit with a $700 million payroll tax increase on July 1 to reduce a deficit in the Unemployment Insurance Trust Fund, which ballooned in recent years following a crush of pandemic-fueled layoffs and business closures.

"That's coupled with a $300 million increase that took effect less than a year ago, which will push the total payroll tax increase borne by employers to well over $1 billion," officials said.

Following the disclosure, Republican lawmakers are pushing to tap into federal COVID-19 pandemic relief funds to replenish the unemployment insurance fund and ease the burden on employers.

"There is absolutely no reason the Murphy administration can’t dedicate or repurpose some of the unspent $5 billion of pandemic relief funds at its disposal to prevent this looming and unnecessary tax increase," Senate Republican Leader Steven Oroho, R-Franklin, said in a statement.

Connecticut shelled out an unprecedented $9.7 billion in jobless benefits during the pandemic, as hundreds of thousands of workers were sidelined by government-imposed shutdowns meant to stop the spread of the virus, including money received from federal pandemic unemployment programs.

That forced the state to borrow up to $1 billion from the federal government to continue paying jobless claims, which must ultimately be repaid with interest.

The state's unemployment trust fund was in the red even before the pandemic. Groups like the Connecticut Business and Industry Association say the fund has been solvent in only two of the past 50 years.

In 2021, Gov. Ned Lamont and the state Assembly approved a package of reforms seeking to improve the fund's solvency and ease employers' burdens by increasing the minimum base period earnings required to qualify for unemployment benefits from $600 to $1,600, then index it to inflation, and freezing the maximum weekly benefit amount for four years.

The Lamont administration projects that beginning in fiscal 2024, when the changes take effect, the reforms will save the unemployment fund $84.25 million annually while generating $130.9 million in new annual revenues.

But Lamont and Democratic legislative leaders have resisted calls to use federal pandemic funds to pay down the unemployment insurance debt.

That's despite a recent report from New Jersey State Auditor David Kaschak, which found that while the state received $6.24 billion in federal American Rescue Plan aid in 2021, as of March 31, only $1.1 billion had been spent.

"Dozens of other states have used the federal pandemic relief funds they received to replenish their unemployment funds," Oroho noted, "in the wake of massive payouts resulting from pandemic-related unemployment."

"The longer the Murphy administration sits on unspent pandemic relief funds, the greater the risk those funds will be clawed back by the federal government," he said. "It would be fiscally irresponsible for the Murphy administration to not take action to protect these funds by dedicating them quickly to continuing needs like our unemployment fund."

The focus of the work of The Center Square New Jersey is state and local-level government and economic reporting that approaches stories with a taxpayer sensibility.