Impasse over Unemployment Tax on Businesses Continues in Indiana

The full Indiana House returned to the Statehouse on March 10 after a five-day break, but partisan differences remained over an unemployment insurance tax bill as a March 14 deadline for adjournment loomed.

Democratic House Speaker Patrick Bauer of South Bend met privately with Republican Gov. Mitch Daniels in hopes that he would help broker a compromise on the issue. He said the talk was constructive and mostly friendly, and that Daniels encouraged the parties to keep talking.

“We agreed to try to agree,” Bauer said.

Lawmakers had hoped to finish business last week, but Bauer decided to put the House in recess because he said Republicans in charge of the Senate weren’t negotiating in good faith. The move outraged Republicans.

Bauer said that agreements had been reached on two key bills. One would allow schools to shift some money from accounts funded by property taxes to help offset $300 million in cuts Daniels imposed on general operating expenses.

He also said a compromise was struck on a bill to help shore up the state’s Public Deposit Insurance Fund, which is used to back up bank deposits made by state and local governments.

But he said Republicans were using the impasse over the unemployment insurance bill to hold those issues hostage, and that the school and banking bills should stand on their own merits.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, countered that if the school funding compromise passed without an agreement on unemployment insurance, nothing would prevent Bauer from adjourning the House and ending the session.

“We are concerned about that,” Kenley said.

Senate Republicans passed a bill earlier this session that would delay for one year an unemployment insurance tax increase on businesses scheduled to take effect next month. The increase was approved last year as a way to start shoring up the unemployment insurance fund, which has borrowed $1.6 billion from the federal government so far to remain solvent.

Republicans want at least a one- or two-year delay in the tax increase, which they say would cause employers to layoff workers in still poor economy.

The House passed a bill that would repeal the tax increase outright, but Democrats included some provisions that Republicans don’t like. They include a new system to crack down on employers who misclassify workers as independent contractors to avoid paying unemployment taxes. Republicans say that would have a chilling effect on the business community.

Senate Republicans offered a compromise that would strike that provision, but they included some tax breaks and incentives that House Democrats want in hopes of creating jobs. Democrats balked at it, saying it didn’t do enough to create jobs or punish employers who cheat the unemployment insurance tax system.

Bauer said other key issues shouldn’t be held up by the unemployment dispute.

“We should continue to work on the unemployment bill and if we can get a compromise that would be good, and if we can’t at least you have solved two or three problems and don’t leave two or three on the table,” Bauer said.

Senate President Pro Tem David Long, R-Fort Wayne, said it wasn’t unusual for lawmakers to head into a session’s last days with a few key issues linked.

“I think much like any session, budget or otherwise, there’s usually a few issues that need to be worked out in a conglomeration to get us out of here,” Long said.