DON BRUNELL: Unemployment tax creates Catch-22
February 8, 2010 · 4:41 PM
By Don Brunell
It is the ultimate no-win situation. A Catch-22.
Washington employers struggling to survive our “Great Recession” are being forced to lay off employees. Those workers are receiving unemployment benefits, which deplete the state’s unemployment trust fund. To replenish the fund, the state is increasing unemployment insurance taxes on employers.
Higher taxes make it harder for those employers to create jobs. Unlike workers’ compensation, employers pay for the entire unemployment insurance program because there is no employee contribution.
The amount employers pay into the unemployment insurance trust fund is based on their layoff history and the amount in the trust itself. This includes all types of employers – hospitals, state and local governments, nonprofits and private-sector businesses. When a recession forces layoffs and the trust to diminish, an employer’s UI taxes go up. In addition, virtually all employers pay into a pool to cover benefit spikes during times of high unemployment. It is a Catch-22.
Rising unemployment in Washington is draining our UI trust fund. In 2009, the fund paid out $4 billion in benefits, more than three times the amount paid in 2008.
As a consequence, UI taxes are increasing dramatically this year. Some examples from a recent survey of AWB members:
• a Monroe business is facing a 1,420 percent increase in UI taxes this year.
• a Seattle carpet company will see a 1,100 percent increase.
• a Port Angeles marine company will see a 1,000 percent increase.
• a Seattle restaurant faces a 980 percent increase.
• a Walla Walla sand and gravel company will see a 185 percent increase.
But wait. It gets worse.
Despite this economic death spiral, some state lawmakers actually want to expand unemployment benefits. Two bills have been proposed to broaden eligibility for some part-time workers and people who voluntarily quit their jobs. No one knows exactly how much these proposals will cost employers, but in this economy, such efforts are ill-considered at best.
Yet one thing is certain: The more UI costs lawmakers add to the system, the more employers have to pay.
Washington already provides among the most generous unemployment benefits in the nation. In addition, Congress has repeatedly increased jobless aid to the states. Currently, a jobless person in Washington can collect unemployment benefits for 99 weeks – almost two years.
Expanding state unemployment benefits makes no economic sense.
The best way to help those who are unemployed is to create jobs. And every time the Legislature takes more money from employers, it makes it harder for them to maintain or create those jobs.
Pushed to the breaking point, businesses will close or leave Washington, taking their jobs with them. States are offering incentives to entice Washington employers to relocate and legislators should do nothing to tip the balance. Many lawmakers never dreamed Boeing would relocate its headquarters to Chicago or shift its second 787 production line to South Carolina. They were wrong.
If we are to recover from this recession, legislators in Olympia should judge virtually every bill that crosses their desks this session by a single standard: “Will this make it harder or easier for employers to create jobs?”
Don Brunell is the president of the Association of Washington Business.