Washington, DC – The time was October 1976. KC and the Sunshine Band encouraged Americans to “Shake Your Booty” and the Bee Gees proclaimed that “You Should Be Dancing.” And Congress created a supposedly “temporary” Federal unemployment tax on jobs, sometimes called the Federal Unemployment Tax Act (FUTA) “surtax.” Today, after 35 years and eight separate extensions of this provision, the surtax will expire as House Republicans, led by Ways and Means Committee Chairman Dave Camp (R-MI) have refused to entertain an extension of this “temporary” tax on jobs beyond its current June 30, 2011 expiration date.
Discussing the expiration of the FUTA surtax, Camp stated, “The death of any tax on jobs – no matter how big or small – is a historic moment and one to be celebrated. 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 purpose of the “temporary” 0.2% surtax was to repay Federal general revenues used to provide Federal unemployment benefits paid in the wake of the 1973-75 recession. Though 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.
To learn more about the FUTA surtax, including a timeline detailing the eight times the “temporary” tax has been extended, click here.