Businesses in the District of Columbia must pay nearly $11 million extra federal unemployment compensation taxes this year because the city has failed to meet its schedule for repaying $65 million it borrowed from the U.S. Treasury to pay benefits during the recession of the mid-1970s, city officials said last week.
The additional taxes amount to 0.6 percent of the entire covered payroll for all employers in the District, up from 0.3 percent last year and a financial jolt that will automatically be raised again in 1982 unless city officials take steps to revamp the city's own jobless tax structure and reschedule the District's future payments to the Treasury.
Matthew F. Shannon, associate director of the D.C. Department of Employment Services, said the agency expects to ask the City Council later this year to increase local -- as disticnct from federal -- taxation for the program, probably by raising the ceiling on the level of payrolls subject to the levy. He declined to speculate on the amount of the possible increase.
Such a proposal could prove controversial. A spokesman for the Metropolitan Washington Board of Trade, the city's chief employer association, said that group would scrutinize any such plan and might insist on further tightening the eleigibility for getting jobless benefits. The board did so with limited success, over protests from organized labor, when the council last changed the compensation program in 1978.
The board has long contended that the city's liberal rules and high, annually increased benefits -- currently a maximum of $196 a week, exempt from personal income taxes -- are a drag on the city's economy. Labor leaders dispute this.
The city's program currently has nearly 40,000 beneficiaries and costs private employers about $60 million a year. The federal and District governments contribute an additional $20 million to pay benefits to jobless former public employes.
Among other aims, the 1978 tax changes were intended to raise enough money not only to pay benefits to jobless workers but also to repay the $65-million loan to the Treasury over a five-year period. The total outstanding loan peaked at $73.5 million, Shannon said, but has been whittled down.
"We did not meet the ambitious [repayment] schedule we set for ourselves," Shannon said, partly because the city had to join last year in the nationwide payment of 13 weeks of supplemental benefits to unemployed workers whose normal maximum six months of benefits had expired.
Under a federal law that President Reagan is expected to seek to eliminate, such extended benefits are paid for the extra 13 weeks whenever the national insured unemployment rate goes above 4.5 percent, even though local joblessness may not reach that level. Half the cost is paid by the federal government and, locally, half from taxes levied by the District or local employers.
The 1978 amendments to the District program require employers to pay between 1 and 5.4 percent of their payrolls, up to a maximum of $6,000 per worker. The tax rate varies from one business to another -- a firm that has a stable work force whose employes make a few claims on the jobless fund pays the lowest rate, while a firm with frequent layoffs pays the highest. Employes make no contribution to the unemployment compensation fund.
In addition to the D.C. tax, the federal government levies its own unemployment tax on employers. Normally this has an effective rate of 0.7 percent of the covered payroll.
When the city failed to make substantial inroads against its debt to the Treasury in 1978, local employers had to pay an additional 0.3 percent surtax, a total of about $5 million. In 1979, the surtax was waived because of anticipated payments. But when the city fell behind, the Labor Department ruled last November that the surtax to be collected this year from D.C. businesses must double, to 0.6 percent, which Shannon said will cost local employers an extimated $10.8 million.
Unless the city negotiates an accepted payment program this year, the federal surtax will grow in 1982 to 0.9 percent and in 1983 to 1.2 percent, increasing each year by another 0.3 percent until the debt is fully repaid.
By national standards, Shannon said, the District's $65-million debt is relatively small. He noted that Pennsylvania, a state with severe joblessness, owes $1.6 billion, and that other states in this region have failed to meet their repayment obligations to the Treasury.
Increasing the D.C. unemployment tax rather than continuing to repay through the federal surtax would have benefits to local employers, Shannon said, since payments into the city fund are credited to the accounts of the individual business firms and result in lower rates, while payments directly to the federal government are not.