Ohio businesses can expect another three hikes in the federal unemployment tax because of the state's lingering unemployment compensation loan. It will take "three more tax increases to generate enough to pay off the unemployment trust fund debt," Ohio budget director Timothy Keen told lawmakers on Tuesday.

Ohio businesses can expect three more annual hikes in the federal unemployment tax because of the state�s lingering unemployment-compensation loan.

It will take �three more (tax increases) to generate enough to pay off the unemployment trust-fund debt,� Ohio budget director Timothy Keen told legislators on Tuesday.

Briefing the House Finance Committee on Gov. John Kasich�s budget plan, Keen rejected calls from some legislators that the state use some of the budget surplus to pay down the nearly $1.4 billion debt.

�The state has paid the interest and is doing its part to subsidize the system,� Keen said. �But to use state funds to pay off the debt, I do not believe, is the most appropriate policy response."

The unemployment-compensation system is supposed to generate enough in tax revenue to pay benefits to jobless workers, he said.

The federal tax rate paid by businesses was increased for the fourth time on Jan. 1 under an automatic repayment system for states that have failed to repay their debts. That increase, on top of three previous ones, cost employers $84 per employee, according to the Ohio Department of Job and Family Services. In all, the debt has cost Ohio businesses more than $558 million in added taxes.

On Tuesday � after Keen detailed Kasich�s plan, which includes sweeping income-tax reductions for taxpayers and small businesses � Republican and Democratic legislators suggested using the budget surplus to reduce the debt. They said the rising federal unemployment tax rate is a drag on businesses.

�I would propose to you that depending on the size of business, the number of employees and their profitability, there are still companies because of this federal unemployment tax who aren�t seeing the benefits of these other cuts we�ve provided them,� said Rep. Mark Romanchuk, R-Ontario.

Most Ohio employers pay state and federal payroll taxes. The federal portion is returned to the state to pay administrative costs, and the state tax pays benefits to unemployed workers. But without sufficient reserves when the recession hit, Ohio and 35 other states were forced to borrow from a federal trust fund to continue paying jobless benefits to unemployed workers.

According to the U.S. Department of Labor, most states have repaid the money. Ohio is among nine states and the Virgin Islands that still owe $14.4 billion combined. Ohio owes more than all but California and New York.

Kasich�s budget plan includes interest payments on the loan from year-end surplus but no money to go toward the principal.

Keen estimates the state will end this fiscal year on June 30 with about an $800 million surplus. About $200 million will be used to support the 2015 tax cut, he said, while $374 million will go into the rainy-day fund, $127 million will go to debt relief and $40 million will go to pay the interest on the federal unemployment-compensation fund loan. The rainy-day fund will have $1.85 billion if the deposit is made.

An overdue report by Rep. Barbara Sears, R-Sylvania, is expected to outline ways Ohio can pay off the debt and restructure the state�s unemployment compensation to avoid future borrowing. The report, due by Dec. 31, could be released anytime.

ccandisky@dispatch.com



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