Lawmakers Push for $600M in Cuts to Unemployment Taxes in Washington State


Employers in some pandemic-ravaged Washington state industries could see up to $600 million in new tax relief under legislative measures that also aim to improve jobless claims processing and prevent unemployment fraud.

But the measures have come under fire by business groups, who say the tax cuts are too small, and by labor advocates, who say the state has already cut employers' taxes by more than a billion dollars this year.

Senate Bill 5478, which was introduced last week, uses $500 million in state funds to lower unemployment taxes for firms that saw big pandemic-related layoffs and face tax hikes in 2022 to cover the extra jobless benefits paid by the state. A House measure, HB 1568, would cut those taxes by $600 million.

The relief is intended to spare "the most vulnerable" of Washington's employers from another obstacle to economic recovery, said state Sen. Karen Keiser, D-Des Moines, co-sponsor of SB 5478 and chair of the labor, commerce and tribal affairs committee.

The measures are part of a broader initiative in the Senate and House budget process that uses both state and federal pandemic funds to address the impacts of the COVID-19 pandemic on the state's unemployment system.

SB 5478, for example, also would put $82 million in state funds toward unrecovered benefits stolen in last spring's $600 million unemployment fraud, Keiser said.

All told, "we're spending ... almost $600 million in state funds to help businesses and our unemployment insurance program," said Keiser.

Some measures to improve the state unemployment system would also get funding from Washington's share of the $1.9 trillion American Rescue Plan Act signed by President Joe Biden in March.

More than $10 million in federal funds would be used to beef up the Employment Security Department's (ESD) anti-fraud measures and upgrade its often-overwhelmed phone system with cloud-based technology.

Another $22.3 million would help the Office of Administrative Hearings with its backlog of appeals by claimants who have had benefits denied by the ESD.

But the proposed measures have faced criticism.

Although labor advocates welcomed more funding to fix ESD's claims processes, some criticized the large tax cuts, which come less than two months after lawmakers approved more than $1 billion in unemployment tax breaks for business.

The $500 million in tax cuts in the Senate measure "is probably better spent on [things like] direct assistance to workers or funding the kinds of infrastructure that are going to more systematically put folks to work or create new opportunities," said Joe Kendo, a lobbyist with the Washington State Labor Council.

Business groups have their own concerns. The $500 million in tax cuts in SB 5478 is just a fraction of the $1.5 billion to $2 billion that businesses in the state face in pandemic-related unemployment tax increases, the Building Industry Association of Washington (BIAW) said. "We don't think the $500 million is enough," said Tom Kwieciak, a lobbyist for BIAW.

Some business groups also said lawmakers made eligibility requirements that arbitrarily excluded many employers from any tax relief.

Businesses could see a modest increase in tax relief when House and Senate lawmakers negotiate over the measure's final version. (The House version also contains $250 million in relief for small businesses.)

And Keiser said lawmakers may come back in January and approve more tax relief. "I'm not saying this is the end of our work," she said. Keiser, for example, is looking at longer-term initiatives for next year that would aim to strengthen the job market through things like apprenticeship programs.

But in the meantime, Keiser said some lawmakers are reluctant to commit more dollars to any programs until the pandemic ends.

"We don't know what the pandemic is going to do next," Keiser said. "It's a diabolical virus and we could be right back on our heels next fall. We don't know. So we're going to not spend it all."