NEW YORK (CNNMoney.com) -- Employers are getting hit with a massive tax hike at a time when they can least afford it.
Cmpanies in at least 35 states will have to fork over more in unemployment insurance taxes this year, according to the National Association of State Workforce Agencies.
The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold.
Many of these hikes happened automatically as prolonged joblessness triggered state laws governing their unemployment insurance systems. But at least seven states voted to raise their taxable wage bases, the level of income subject to unemployment tax. And another 10 are looking at upping the wage bases or tax rates.
The states are scrambling to restore their unemployment insurance trust funds, which cover claims.
State trust funds have been decimated by the Great Recession, forcing a record 26 states to borrow a total of more than $30 billion from the federal government. The numbers are expected to grow to 40 states borrowing $90 billion by 2012, said George Wentworth, policy analyst at the National Employment Law Project.
"States are going to be facing higher unemployment tax rates for some period of time," Wentworth said.
In addition, employers pay federal unemployment taxes. If states don't repay their federal loans, businesses could see their federal tax go up as well in coming years, said Rich Hobbie, executive director of the National Association of State Workforce Agencies.
Higher taxes, however, dampen employers' ability to hire new workers, crimping any nascent economic recovery. Companies pay taxes on each employee on the payroll.
"There's no doubt it discourages hiring," said Douglas Holmes, president of UWC-Strategic Services on Unemployment and Workers' Compensation, an employers' trade group. "In fact, it leads to increased unemployment."
Cognizant of this, some states are looking to soften the blow through legislation that would delay the hikes.
The article then goes on to talk about what states are being hurt the most and some of the consequences. Is there a way of hiring people and not rising taxes? What are possible solutions to this unemployment tax problem? Is there a way for the government to create more jobs to reduce unemployment? What are your thoughts?
I think that in order to make improvements, there need to be sacrifices. Unfortunately for our work force, the U.S. has a lot of improving to do. I think that this is an extremely difficult problem with no easy answer, but it would help if the federal government continues its strong initiative to create more jobs to offset the discouraged hiring caused by high taxes.
ReplyDeleteA
Well, some economists would argue that if the government avoids implementing new taxes that the labor market would eventually correct itself or reach its own equilibrium. But based on what I see, I disagree with that.
ReplyDeleteUnemployment will be ever present in our economy but the rate of unemployment can be reduced. Maybe the government should provide more incentives for companies to hire more workers instead of merely providing consequences. I think there is a way of hiring people and not paying taxes if the government creates some new programs aimed specifically at job creation, for example the stimulus plan.
The only possible way I see the govt creating more jobs is by increasing production and devaluing the American dollar (which also has its consequences.)
A,T
I feel that a large tax is not what the economy needs right now, however, it is what the government needs. So where would the compromise be? Also as we learned before, a tax on the employer is also a tax on the employee.
ReplyDeleteT, E
Like Caleb said, there needs to be a compromise. Big taxes will not help the economy, but will help the government, and therefor a compromise is a must.
ReplyDeleteThe tax on the businesses will just hurt the circular flow of government and that is less money from the businesses to invest. There needs to be less of a tax on them atleast until they get back on their feet and at full production
ReplyDeleteI think by having these taxes the idea is that it will be in the interests of states to get these people jobs and not have people be on unemployment. I understand that this is really hitting the states hard, however I feel that it is not purely the governments responsibility to pay unemployment and that the states should help out too. I feel that this tax will also help to promote job creation because states will not want to pay these taxes. However, if the states are paying this money, then their budgets are impacted dramatically as well. Although I understand the tax, I don't know why it is in place.
ReplyDeleteIt is sad that Obama's federal tax on unemployment actually is turning out to be a positive feedback loop. I really thought the taxes would encourage hiring, but if the companies don't find anyone to hire, I suppose it would be really awful, like the employee explained. I wish there was an easy way to decrease the unemployment rate, but like most serious situations and problems, there usually isn't.
ReplyDeleteI agree and feel that the states should be responsible when it comes to getting people out of unemployment. The government can only do so much, and the main thing they are ready to do is increase taxes. Although this is in some ways beneficial, it is in the same way very negative.
ReplyDeleteI agree with the sentiment that taxes like this may discourage hiring. If businesses are laying off employees because they can't afford to keep them, how can they afford to keep paying for them once they've laid them off?
ReplyDelete