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Arizona's Jobless Drug Test Bill Would Trigger Huge Tax Hike

Unemployment Benefits

First Posted: 03/13/2012 10:36 am Updated: 03/13/2012 12:56 pm

WASHINGTON -- Congress told states in February that they could make unemployed people pass drug tests in order to qualify for benefits. Arizona lawmakers are the first to consider jobless drug testing since then, with a bill that passed the State Senate last week. But the U.S. Labor Department has a message for the state: You're doing it wrong.

And if they follow through with the drug testing proposal as is, Arizona businesses could be in for a major tax hike.

Here's why: If a state's unemployment laws do not gel with federal unemployment laws, then the federal government won't send administrative funding for the state's unemployment insurance programs, and state businesses can lose out out on federal unemployment tax credits.

In every state, employers receive a tax credit that limits their obligations under the Federal Unemployment Tax Act. In Arizona, the credit reduces business' obligations tenfold, from 6 percent to 0.6 percent of the first $7,000 in wages paid to each employee every year.

According to Maurice Emsellem, policy co-director of the National Employment Law Project, if Arizona loses the credit, the average business would go from paying $48 per worker each year to $480 per worker. It's such an extreme scenario that it's never happened before, Emsellem said.

The Arizona drug testing bill, introduced by Sen. Steve Smith (R-Maricopa), would require unemployed people who want benefits to pay for their own drug tests. If their results are positive, they'll be ineligible for benefits. But federal law does not allow states to deny benefits for any reason unrelated to the circumstances of a person's job loss, unless there's fraud or a person is making money from another job.

In a letter dated Feb. 28, the U.S. Department of Labor notified the Arizona Department of Economic Security that Smith's bill would not fly. "Requiring an individual to agree to submit to a drug test as a condition of initial eligibility for UC [unemployment compensation] is not permitted because it is unrelated to the fact or cause of the individual's unemployment," the letter said. The Arizona State Senate approved Smith's bill anyway.

Congress passed a law in February allowing states to drug test unemployment claimants pursuing new jobs in occupations that regularly conduct drug testing, as determined by the Labor Department. Even though the department has not issued rules on what occupations regularly require testing, the Feb. 28 letter notes that Smith's bill makes no effort to comply with the new law.

Smith, for his part, said he took encouragement from what Congress did, even though he would have introduced his bill anyway. And he said he didn't care if it triggered a lawsuit on constitutional grounds, as it almost certainly would. "Well, Arizona's no stranger to lawsuits," Smith told HuffPost. "We've got everybody from the president on down suing us."

Smith's office did not respond to requests for comment about his bill's conformity to federal law.

If the state legislature follows through with Smith's measure, come October, the federal Labor Department could not certify the state's unemployment law. The state would be able to prevent the loss of funding and tax credits during a judicial appeals process, but Emsellem of the National Employment Law Project said an appeal would only delay the inevitable, and businesses would eventually have to pay back taxes starting from October.

"They got no case if they appeal," Emsellem said.

Democrats in the Arizona House of Representatives said it's unlikely the bill will pass the House.

“We’ve looked at this legislation. It appears that it is not compliant with federal law and it isn’t getting a lot of traction here," House Minority Leader Chad Campbell said in a statement to HuffPost. "Frankly, bills like this are a waste of time and we would rather focus on creating jobs so we can get people off of unemployment for good."

Clarification: The beginning of the article originally said the bill passed the Arizona House of Representatives. It passed the State Senate.

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