No free lunch: Benefits Tax Hits Businesses Twice
From The Wall Street Journal:
State and federal taxes are rising for employers across the U.S. as states struggle to repay federal loans for unemployment benefits, including more than $1 billion in interest due Friday.
The increases in state and federal unemployment-insurance taxes—paid primarily by businesses—are hitting as the recovery appears close to stalling, consumer confidence is low and unemployment remains high at 9.1%.
These tax increases come on top of measures intended to tame government budgets, including other state tax increases and spending reductions as well as federal cuts.
When joblessness soared during the recession and anemic recovery, many states drained their unemployment funds and borrowed from Washington to cover their share of benefits. Now 27 states collectively owe almost $38 billion. More than $1 billion in interest on those loans is due Friday, when the federal government's fiscal year ends, and some states are relying on additional taxes to make the payments.
Many employers will face a second hit—higher federal taxes—if their states don't pay their loan balances by November. The increased unemployment-insurance levies, an added $21 per employee a year in roughly 22 states, go into effect in January. That increase will be even bigger for states that miss their interest payments.
The federal loans to states for unemployment insurance were interest-free through 2010, thanks to a provision in President Barack Obama's 2009 stimulus package. Mr. Obama's 2012 budget proposal included a provision that would allow states to borrow interest-free for another two years but it gained little traction in Congress.
Rising unemployment taxes could diminish the impact of other government measures designed to boost the economy. The Social Security payroll tax cut for workers, which reduced the employees' rate to 4.2% of earnings from 6.2%, did little to reduce the overall tax burden or boost disposable income this year in part because it was offset by state-level tax increases and the expiration of other federal tax credits, according to a Goldman Sachs analysis.
Amid high unemployment, states could borrow from the federal government for years, leading to repeated rounds of tax increases to pay back the loans with interest.
State and federal taxes are rising for employers across the U.S. as states struggle to repay federal loans for unemployment benefits, including more than $1 billion in interest due Friday.
The increases in state and federal unemployment-insurance taxes—paid primarily by businesses—are hitting as the recovery appears close to stalling, consumer confidence is low and unemployment remains high at 9.1%.
These tax increases come on top of measures intended to tame government budgets, including other state tax increases and spending reductions as well as federal cuts.
When joblessness soared during the recession and anemic recovery, many states drained their unemployment funds and borrowed from Washington to cover their share of benefits. Now 27 states collectively owe almost $38 billion. More than $1 billion in interest on those loans is due Friday, when the federal government's fiscal year ends, and some states are relying on additional taxes to make the payments.
Many employers will face a second hit—higher federal taxes—if their states don't pay their loan balances by November. The increased unemployment-insurance levies, an added $21 per employee a year in roughly 22 states, go into effect in January. That increase will be even bigger for states that miss their interest payments.
The federal loans to states for unemployment insurance were interest-free through 2010, thanks to a provision in President Barack Obama's 2009 stimulus package. Mr. Obama's 2012 budget proposal included a provision that would allow states to borrow interest-free for another two years but it gained little traction in Congress.
Rising unemployment taxes could diminish the impact of other government measures designed to boost the economy. The Social Security payroll tax cut for workers, which reduced the employees' rate to 4.2% of earnings from 6.2%, did little to reduce the overall tax burden or boost disposable income this year in part because it was offset by state-level tax increases and the expiration of other federal tax credits, according to a Goldman Sachs analysis.
Amid high unemployment, states could borrow from the federal government for years, leading to repeated rounds of tax increases to pay back the loans with interest.
posted by Sid Cottingham | 5:52 AM
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