Labor Secretary Elaine Chao testified on the FY2005 budget before the House Ways and Means Committee on March 4. Her comments focused on programs within the jurisdiction of the committee, including unemployment insurance, personal reemployment accounts, and trade adjustment assistance.
Declaring that the economy “has turned the corner,” Secretary Chao stated, “The unemployment rate dropped to 5.6 percent in January, even as more people entered the job market, and is down from its recent peak of 6.3 percent in June 2003. Approximately 112,000 new jobs were created in January the largest monthly increase since December 2000 and 366,000 jobs have been added over the last five months.”
With regard to the unemployment insurance (UI) program, Secretary Chao said that the FY2005 budget would provide $2.7 billion to the states for UI administration, a $24 million increase over FY2004. “These funds will finance the states’ efforts in processing 22.3 million initial UI claims and collecting state payroll taxes from 7.2 million employers.” The budget also would provide $20 million for a new program to allow staff in one-stop career centers to conduct 50 percent more face-to-face UI eligibility reviews.
Secretary Chao outlined the administration’s proposal to reform the UI program. One element of the proposal would close the loophole in many state UI laws that permit some employers to pay less than their fair share of state unemployment taxes. She explained, “In general, when a worker collects UI benefits, the former employer’s account within the state’s unemployment fund is charged. The more charges to the account, the higher the tax rate, up to a maximum set by state law…A new employer who does not yet have sufficient experience to qualify for a rate based on experience is assigned a ‘new employer’ tax rate.” Secretary Chao said that many employers are qualifying for a lower tax rate by creating a new “shell” company, a practice she referred to as “SUTA [state unemployment tax acts] dumping.” She noted that Rep. Wally Herger (R-CA) is the sponsor of a bill (H.R. 3463) to close the loophole.
Secretary Chao indicated that detecting and preventing improper UI payments is a high priority for the administration. She said that the FY2005 budget includes a proposal to allow states to match UI benefit payments with data in the National Directory of New Hires, a Health and Human Services database used in connection with child support enforcement. Secretary Chao noted that the proposal is included in a bill (H.R. 4) to reauthorize the 1996 welfare law (P.L. 104-193).
The FY2005 budget also includes a proposal to reform the UI program that would give states another tool to help them recover UI overpayments and strengthen their trust funds. Secretary Chao explained, “The Treasury currently operates an offset program that matches delinquent debt owed to various government agencies against federal income tax refunds and deducts these debts from the refunds paid to these individuals. The Administration proposes allowing the states to use this offset program…to recover UI overpayments that they cannot collect using their normal procedures.”
According to Secretary Chao, the budget would include $50 million in FY2005 for personal reemployment accounts, which would provide up to $3,000 to selected unemployment insurance claimants who are most likely to exhaust their benefits. She explained that the program “would provide individuals more control over their return-to-work efforts. The resources provided to each individual could be used for the training and services that best benefit him/her.” She also noted that, although the program is closely tied to the UI program, receipt of the funds would not adversely affect an individual’s UI eligibility.
