Grassroot Institute urges special session to block huge unemployment tax increase

If no action is taken, Hawaii businesses will pay about $355 million for 2023, up $113 million or 46%, over last year, according to state estimates

News Release from Grassroot Institute 

HONOLULU, June 1, 2023 >> Gov. Josh Green should call a special session of the Legislature to prevent a looming tax hike on Hawaii businesses that was overlooked in the most recent legislative session, says Keli‘i Akina, president and CEO of the Grassroot Institute of Hawaii.

Because of possibly unintentional inaction by the 2023 Legislature, the state’s unemployment insurance taxes are slated to go up substantially for calendar 2023. If nothing is done to prevent it, Hawaii businesses will pay about $355 million in unemployment taxes this year, up $113 million or 46%, over last year, according to state government projections.[1]

“This tax increase is the last thing businesses need as they worry about their future and the possibility of a recession,” Akina said. “The legislative session has ended, but the tax hike could be averted if Gov. Green calls a special session.”

The unemployment insurance tax is calculated based on how much money is in the state’s unemployment insurance fund. If the fund runs low, as it did during the COVID-19 crisis in 2020, then the UI tax rate automatically increases to replenish it. 

Because so many people were unemployed during the COVID-19 emergency period — about 146,000, or 22.6% of Hawaii’s workforce, at its peak in April 2020[2] — the fund ran out of money and the state had to borrow money from the federal government to keep it solvent. 

State lawmakers delayed the automatic tax increases in 2021 and 2022. But this year they failed to prevent a change that could force businesses to pay between $150 and $470 more per employee in 2023.[3]

This scheduled tax increase is causing many small businesses grief, even as they are struggling with a labor shortage and high materials costs. 

Said Akina: “All too often, our lawmakers overlook the needs of our small businesses, so I hope they take this opportunity to do something about this tax hike before it’s too late.”

---30---

[1] “Annual Evaluation of the Hawai‘i Unemployment Compensation Trust Fund,” Hawaii Department of Labor and Industrial Relations, December 2022, p. 1.
[2] “Databases, Tables & Calculators by Subject,” Hawaii Statewide, U.S. Bureau of Labor Statistics, accessed June 1, 2023.
[3] Analysis by the Grassroot Institute of Hawaii, based on Schedule F tax rates and 2021 employment and earnings statistics.