The Indiana Chamber has pointed out during the course of the year that one of the unfortunate aspects of the state unemployment insurance tax increase passed into law in April was the likelihood of higher unemployment. Why? Companies already faced with a still sputtering economy would be forced to lay off more people to pay the additional tax.
Fortunately, in Indiana, a one-year delay in that tax increase has been proposed — and hopefully will pass early in the 2010 General Assembly session. In a recent story, the Associated Press described the problem on a national level. It included an interview with a longtime Indiana Chamber supporter (and former board of directors chairman).
A brief excerpt:
Employers already are squeezed by tight credit, rising health care costs, wary consumers and a higher minimum wage. Now, the surging jobless rate is imposing another cost. It’s forcing higher state taxes on companies to pay for unemployment insurance claims.
• Chuck Ferrar, who owns a liquor store in Annapolis, Md., expects to pay $9,000 in unemployment taxes next year, up from $3,000 this year. Health care costs for his employees will rise by $8,000, or 17.5 percent. "When you start adding this up, it turns into real money," he said. "If I lose an employee through attrition, I will not replace him. You can’t afford to do it."
• Sam Schlosser, owner of Plymouth Foundry Inc. in Plymouth, Ind., said his unemployment tax bill could double next year. Revenue at the family-owned company, which makes iron castings for machine parts, has fallen about 50 percent, he said. In case of higher taxes, his company may have to consider layoffs, he said.
• Marjorie Feldman-Wood, president of Al’s Beverages in East Windsor, Conn., which makes soda fountain syrup, said higher taxes would make pay raises less likely. Connecticut is borrowing from the federal government, and employers fear the state will have to raise taxes soon to repay the loan. "There’s only so much money at the end of the day," she said.
Bruce Meyer, a University of Chicago economics professor, said his studies show that higher unemployment taxes usually lead to lower pay for employees.
And this from the New York Times:
It works like insurance. If the government pays a claim, your rates go up. In fact, if your former employee collects $10,000 in unemployment payments, you can expect to pay close to twice that in increased premiums. At least that’s how it works in my state, Illinois.
And now, thanks to the stimulus package, unemployment insurance has been extended as much as an additional 20 weeks. If you’ve had to lay off 10 people, this could easily result in additional taxes of $10,000, $50,000, or even $100,000. It’s a time bomb that won’t go off until after employers get their contribution-rate increase, but it will go off.
And therein lies the final irony: Even after the economy improves, I’m going to think long and hard before I hire anyone. Thanks to the stimulus package — the stimulus package — the costs, paperwork, and legal exposure associated with hiring employees is on the rise.