The Federal Unemployment Tax Act surtax is set to expire Thursday after House Republicans refused to extend the 35-year-old “temporary” unemployment surtax.
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The surtax has been extended eight times since it was originally enacted in 1976. House Ways and Means Committee Chairman Dave Camp, R-Mich., refused to extend the tax beyond its current June 30, 2011 expiration date.
“The death of any tax on jobs—no matter how big or small—is a historic moment and one to be celebrated,” Camp said in a statement. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes—once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”
The original purpose of the “temporary” 0.2 percent surtax was to repay federal general revenues used to provide federal unemployment benefits paid in the wake of the 1973-75 recession. While the tax raised $27 billion (adjusted for inflation) and the general revenues were fully repaid by 1987, the 0.2 percent surtax remains on the books today. Since 1987, the tax has raised an additional $46 billion (adjusted for inflation) above and beyond what was needed at the inception of the tax in 1976.
The expiration of the surtax will reduce federal unemployment taxes by $1.4 billion per year, or about $14 per employee per year. That relief slightly offsets the effect of much larger state unemployment tax hikes imposed in recent years to pay for record unemployment benefit spending. Since unemployment benefits are not directly linked to the “temporary” federal tax, its expiration will not affect current or future unemployment benefit receipts.
Without the 0.2 percent surtax, the 6.2 percent FUTA tax rate will fall to 6.0 percent, according to CCH. It was last extended in 2009 as part of the Worker, Homeownership and Business Assistance Act.
Camp's office provided a timeline of the successive extensions of the surtax.