If we have to borrow money to pay UI benefits, employers will have to pay borrowing costs along with their payroll tax. The federal government reduces the Federal Unemployment Tax Act (FUTA) payroll tax credit for states that need to borrow to pay benefits. The reduction in the payroll tax credit rises each year that borrowed funds are not repaid in full. For example, some states and territories are still repaying their federal loans from the Great Recession and had a potential FUTA credit reduction of 3.7% in 2020.
Also, when the Oregon UI Trust Fund has reserves, we earn interest on those monies. Over the last 10 years, our trust fund’s interest added up to $685 million. That means 20% of the increase in the UI Trust Fund balance in the past 10 years came from interest earned —not employer payroll taxes. With Oregon’s payroll tax system, employers only had to pay 80 cents on the dollar for the benefits now being paid out. Due to Oregon’s self-balancing system, the more interest earned, the more likely we are to have a lower tax schedule.
Oregon has a healthy trust fund, so Oregon employers only paid 80 cents on the dollar for benefits paid. States that borrow end up having to pay more than $1 for each dollar of benefits paid.