'Temporary' FUTA Surtax Expires after 35 Years

WASHINGTON, D.C. 

BY MICHAEL COHN, ACCOUNTING TODAY

The Federal Unemployment Tax Act surtax is set to expire Thursday after House Republicans refused to extend the 35-year-old "temporary" unemployment surtax.

The surtax has been extended eight times since it was originally enacted in 1976.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.

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By the Numbers: 

The Long Overdue Expiration of the "Temporary" Federal Unemployment Tax on Jobs

Overview:   In 1976 Congress created a supposedly "temporary" Federal

unemployment tax on jobs, sometimes called the Federal Unemployment Tax Act (FUTA) "surtax." The purpose of this 0.2% surtax, a payroll tax paid by employers, was to repay Federal general revenues used to provide Federal unemployment benefits paid in the wake of the 1973-75 recession.  Though general revenues were fully repaid in 1987, the 0.2% surtax remains on the books today.  But this week, the surtax will expire because House Republicans, led by Dave Camp (R-MI), the Chairman of the House Ways and Means Committee, refused to extend this 35-year old "temporary" tax on jobs beyond its current June 30, 2011 expiration date.

The FUTA Surtax at a Glance

$73 billion The total amount of taxes paid as a result of this "temporary" tax on jobs during its entire 35-year

lifespan.

$27 billion The amount this tax raised (adjusted for inflation) to repay general revenues, between 1976 and 1987.

$46 billion The amount this tax raised (adjusted for inflation) since 1987, which is above and beyond what was needed to repay general revenues for benefit spending in the 1970s.

$14 The Federal tax savings per employee per year from ending this "temporary" tax.

8 The number of times this "temporary" tax was extended.

0 Federal benefits that are directly linked to this "temporary" Federal tax, meaning allowing it to expire will not affect current or future unemployment benefits or recipients.

Timeline

The following is a timeline of the "temporary" Federal tax on jobs:

1976 - Congress creates the "temporary tax" to pay for Federal unemployment benefits provided between 1973 and 1978 (Public Law 94-566).

1987 - Even though the 1970s program has been fully paid for, Congress extends the temporary tax for three more years through 1990 (Public Law 100-203).

1990 - Congress extends the temporary tax another 5 years through 1995 (Public Law 101-508).

1991 - Congress extends the temporary tax, which won't expire for four years, by another year through 1996 (Public Law 102-164).

1993 - Congress extends the temporary tax, which won't expire for three years, by another two years through

1998 (Public Law 103-66).

1997 - Congress extends the temporary tax for nine years through 2007 (Public Law 105-34).

2007 - Congress extends the temporary tax for another year through 2008 (Public Law 110-140).

2008 - Congress extends the temporary tax for another year through 2009 (Public Law 110-343).

2009 - Congress extends the temporary tax for eighteen months through June 30, 2011 (Public Law 111-92).

2011 - House Republicans refuse to extend the temporary tax, causing it to expire on June 30, 2011 after being "temporarily" in place for 35 years

http://waysandmeans.house.gov/UploadedFiles/By_the_Numbers_FUTA.pdf