Published September 2005

Costly flaws in
unemployment tax
system destroy confidence

By Don Brunell
Guest Editorial

When employers pay their unemployment taxes, they must have confidence their hard-earned money goes to its intended use.

Likewise, people out of work through no fault of their own should not be shortchanged by those scoundrels who are defrauding the system.

That’s why lawmakers, union leaders and employers need to plug a “black hole” in Washington’s unemployment compensation system that wastes more than $100 million a year.

The U.S. Department of Labor recently revealed that in 2004, Washington’s UI system overpaid claimants $118 million, an overpayment rate of 10.93 percent, slightly higher than the national average.

Nationally, more than $3.5 billion in UI payments were lost to fraud or error last year.

Clearly, losing one out of every $10 to fraud, agency errors, or other unspecified reasons is not acceptable. What household or business could survive if they lost 10 percent of the money in their bank account?

There is little comfort from the fact that our state’s overpayment rate is down slightly from 2003, or the fact that Washington is not even in the same league as Kansas, where one in three UI dollars went into a black hole.

The problem is serious and needs fixing now. The unions should march arm-in-arm with employers to insist that it is immediately corrected.

Credit the Employment Security Department for taking initial corrective steps. It is doing several cross matches to ensure the validity of Social Security numbers and to make sure people aren’t also receiving disability benefits.

That’s the good news.

The bad news is the agency says the challenge is keeping up with the crooks. Whenever the agency plugs one hole, the villains find another.

The Legislature didn’t help matters this year either. If fact, it made the situation worse.

Rather than tighten up regulations and oversight, lawmakers gutted key cost containment and accountability provisions adopted in 2003.

The bill in question, HB 2255, was sponsored by Rep. Steve Conway, who is chair of the House Labor and Commerce Committee and a leader in the United Food & Commercial Worker’s Union.

The legislation signed by Gov. Gregoire enables people to collect unemployment by averaging two calendar quarters of work rather than the four adopted two years ago.

It also directed the state’s UI laws be “liberally construed” in favor of the claimant. That means when a claim is in doubt, Employment Security writes an unemployment check.

Today, costs matter. They determine whether an employer stays in Washington, and unemployment costs in our state are clearly a competitive disadvantage.

According to a 2005 Washington Alliance for a Competitive Economy (WashACE) report, Washington pays the sixth highest average weekly unemployment benefit at $312. The national average is $265. To fund those benefits, our state’s employers — and employers alone — pay the nation’s highest UI taxes. They average $695 per worker a year, while South Carolina’s tax is $140 — almost 80 percent less.

Other states and nations are working to attract our businesses by emphasizing lower regulatory costs and taxes.

Businesses continually point to Washington’s high costs, particularly UI costs, as a reason to locate elsewhere.

That isn’t good for our state, working families, or those trying to provide jobs.

The bottom line is the sooner our elected officials address those competitiveness shortcomings, the better it is for everyone. Restoring confidence that our tax dollars are actually going to the purpose for which they are collected is paramount.

Don Brunell is president of the Association of Washington Business, Washington state’s chamber of commerce. Visit AWB on the Web at www.awb.org.

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