Panel urges cutback in state tax rate

CARSON CITY -- The state Employment Security Council recommended Tuesday that the state unemployment tax be reduced slightly in 2008 as a way to stimulate Nevada's slowing economy.

Members voted unanimously to lower the average tax rate to 1.33 percent in January. The tax has been 1.38 percent for the last three years.

The actual tax paid by individual employers varies from .25 percent to 5.4 percent depending on the company's history of laying off workers. The tax is collected on the first $25,400 of each employee's wage. New companies pay a rate of 2.95 percent. Employers pay the entire tax. Nothing is deducted from employee wages.

"It will provide an economic stimulus, albeit a small one," Employment Security Commission Administrator Cindy Jones said about the tax reduction.Jones said the employment security system was set up to collect higher taxes in good economic times and lower taxes in times when the economy is not performing as well. Employers will save $12 million a year in taxes with the new rate.

The Employment Security Council is a group of private business and state agency leaders who only can recommend tax changes to Jones. She will set the actual rate at a meeting sometime in November.

But since Jones and economists with her staff proposed and backed the lower rates, it's likely the rate will be reduced. The decision to reduce the tax came during a meeting in which state economist Jim Shabi described how the drop in home construction over the last 16 months has caused the entire state economy to decline. Unemployment in September was 5 percent, higher than the national average. Although Nevada has led the nation in job growth percentage for 12 of the last 18 years, the rate of 1.7 percent this year is about the national average.

Shabi predicted a state unemployment rate of 5.1 percent in both 2008 and 2009. Job growth will rise at a 1.9 percent rate next year and then climb to 3.6 percent in 2009.

That is the year when hotel construction in Las Vegas will begin to boom. About 40,000 additional rooms will be added over the next four years.

Shabi said most economists do not forsee growth in residential home construction until 2009 or even 2010.

While he ultimately supported the tax reduction, Employment Security Council member Rich Wilkening expressed concern that the nation and state could be pushed into a recession should there be a war in Iran.

Economists said a new war would harm the economy, but they also said the state Employment Security Trust Fund has enough funds to handle any emergency.

Even with the drop in the tax rate, the trust fund is expected to increase to $865 million by the end of 2008, up $65 million from the end of 2007.

From the fund, laid off employees are paid unemployment benefits.

Jones announced that starting in November laid off workers will be issued Visa debit cards, instead of weekly unemployment checks. They can use the cards to make purchases up to the amount of compensation for which they are entitled. Laid-off workers will have the option of using the cards or continuing to receive checks.

But she said the "stigma" associated with cashing an unemployment check will be gone since the debit cards look like a normal credit card with no indication they cover someone's unemployment.