Minnesota businesses see tax hike amid UI impasse at Capitol

Published 1:36 pm Monday, March 21, 2022

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ST. PAUL — Since construction was deemed an essential industry during the COVID-19 pandemic, engineering consulting firm WSB largely avoided layoffs to its workforce of more than 600 people for the last two years.

Now, soaring gas prices and supply expenses are putting a squeeze on the company, making a recent increase of $90,000 in state unemployment insurance taxes all the more painful, said CEO Bret Weiss.

“It’s a person for me that could take away,” he said. “It’s going to shift my ability to provide benefits or other opportunities for my staff.”

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Employers across Minnesota are getting bills for higher unemployment insurance taxes after legislative leaders failed to reach a deal by a Tuesday deadline to avert an automatic hike. The money will be used to repay the federal government for jobless aid and replenish the state’s unemployment insurance trust fund, which was depleted earlier on in the pandemic.

Democratic Gov. Tim Walz proposed $2.7 billion in his supplemental budget to repay the debt and replenish the fund out of the state’s $9.25 billion surplus, matching a bill passed by the Republican-controlled Senate last month on a bipartisan vote of 55-11. But House Democratic leaders are still holding out for $1 billion in “hero pay” for front-line workers who were never able to work from home, a proposal that has been stalled since fall because lawmakers can’t agree on how to dole out the funds.

Several meetings in recent weeks between legislative leaders have yielded no progress. Democratic House Speaker Melissa Hortman, of Brooklyn Park, who said she sees April 30 as the actual deadline because that is when the higher tax payments are due, walked out a few minutes into one meeting with

Walz and GOP Senate Majority Leader Jeremy Miller, of Winona, telling reporters that Republicans weren’t willing to negotiate on money for workers.

It’s possible that the state could rebate the tax increase or cut future tax bills if a deal is ultimately reached, but Minnesota Department of Employment and Economic Development officials have said that would be complicated.

“It’s silly that we’re stuck in this spot again,” said David Henrich, president of Bergerson-Caswell, a water well drilling company in Maple Plain that employs 22 people.

Henrich said he’s expecting a tax increase totaling thousands of dollars. He likened the impasse to last year’s delay on tax relief for federal Paycheck Protection Program loans received by businesses.

“We’re trying to keep the costs of operating this business at an affordable level because at the end of the day, the consumers are the people who foot the bill for this stuff,” he said.

According to the Department of Employment and Economic Development, the unemployment insurance tax rate is calculated differently for every individual business. It’s based on how much aid a business used and its total taxable wages up to $38,000 for each employee. Taxes aren’t supposed to go up when unemployment benefits result from pandemic-induced closures.

Not all businesses are complaining about the tax increase. Common Roots Cafe in Minneapolis went from 50 employees before the pandemic to eight or nine, prompting more than 80% of its staff to collect unemployment benefits, said owner Danny Schwartzman. For his business, now back up to 20 employees, the tax increase is “insignificantly small.” He said hiring staff and higher costs associated with supplies have been more pressing concerns.

Schwartzman said tapping the surplus to cancel the tax increase would subsidize large businesses that did well during the pandemic. He said lawmakers should instead use the surplus for targeted relief. Direct subsidies for businesses still struggling due to the pandemic, paid family and medical leave, and increasing access to child care would help businesses and workers most in need, he said.

“If you’re talking about billions of dollars, which everyone is now, there are suddenly the resources to have that big-picture vision and have some transformative time to deal with equity issues and deal with all these kinds of things that people broadly agree with,” he said. “Instead we’re talking about how do we make sure that all businesses — and most of it will go to large businesses — are paying marginally less on payroll taxes.”