fbpx

The following is testimony that was submitted by the Grassroot Institute of Hawaii on Feb. 4, 2021, for consideration by the Hawaii Senate Committee on Ways and Means.
_________________

To: Senate Committee on Ways and Means
Senator Donovan M. Dela Cruz, Chair
Senator Gilbert S.C. Keith-Agaran, Vice Chair

From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President

RE: SB1159 SD1 — RELATING TO EMPLOYMENT SECURITY

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB1159 SD1, which would set the contribution rate for the unemployment insurance tax at Schedule D for the calendar year 2021, Schedule F for the year 2022 and Schedule G for the year 2023.

This bill seeks to offer much-needed relief to local businesses that are still reeling from the COVID-19 pandemic and lockdowns, but we are concerned that it does not go far enough.

Without action from the Legislature, the employer contribution rate for 2021 will be set at schedule H, a record high for our state. That means Hawaii employers will be taxed between 2.2% and 6.6% per employee, depending on how much the employer contributed in the previous year as well as other factors.

According to analysis from the Grassroot Institute, under the automatic increase to Schedule H, the average employer will see the unemployment tax triple, from 1.11% or $534 per employee in 2020 to 3.65% or $1,757 per employee in 2021. 

For some businesses, the increases will be even more dramatic. New businesses will see a tax increase from $1,154 per employee in 2020 to $2,501 per employee in 2021. Some could go from $0 per employee in 2020 to $1,154 per employee in 2021.

Under the proposed Schedule D, the rate would only increase by 38%, according to our analysis. But this would still be a painful hike for the many struggling businesses in our state. Under Schedule F, which would go into effect in 2022, the average increase would be approximately 126%. And under Schedule G, slated for 2023, the average increase would be about 178%.

While this bill  would represent an improvement over the automatic Schedule H tax increase, it still would create a massive burden for local employers. The severe increase to schedules F and G, occurring while the economy is still in a depression, would hamper the state’s economic recovery and could have the unintended effect of prolonging Hawaii’s high unemployment rate.

For some businesses, this tax hike may be catastrophic. Many organizations would have to choose between rehiring employees or paying the tax. Bringing on new staff would become exponentially more expensive. 

Instead of enacting a stepped-up contribution rate from Schedule D to Schedule G over the next three years, legislators should keep the contribution rate at schedule C for 2021 and 2022. Only after that point should they consider raising it to schedules D or E. 

By setting the employer contribution rate at Schedule C for the next two years, the Legislature would avert a disastrous tax increase and help local businesses get back on their feet.

We hold that the best way to help increase state revenues and refill the state coffers is to help the economy flourish. Resetting the employer contribution rate to a lower tier for the next few years would help considerably in the long-term economic recovery of our state.

Thank you for the opportunity to submit our comments.

Sincerely,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii