NCPA - National Center for Policy Analysis

Unemployment Insurance Kills Small Business

December 10, 2010

While politicians in Washington negotiate a deal to provide welcome temporary payroll, income and estate tax relief to America's workers, struggling employers wonder how long they'll have to pay for the compassion of others -- and whether they can survive, says Michelle Malkin.

The Beltway deal hinges on extending federal unemployment insurance (UI) for another 13 months.  This would mark the sixth time that the deadline has been extended since June 2008.

The cost of the joint federal-state program is borne by employers who pay state and federal taxes on a portion of wages paid to each employee in a calendar year.  (At the federal level, employers must pay 6.2 percent of the first $7,000 of income to keep the system afloat.)

The combined burden of these hidden state and federal payroll taxes has exploded during the recession as economic recovery interventions backfire and the jobless rate remains stuck near double-digits.  State UI funds have gone broke in nearly half the states.  As of April 2010, 35 states and jurisdictions had unemployment fund-related debts worth $39.5 billion, says Malkin.

In an interminable money shuffle, these bankrupt state UI funds are now borrowing money from the feds, whose own regular unemployment benefits account and extended benefits account are both in the red.

  • In Colorado, small and midsize firms have been saddled with eye-popping unemployment insurance bills that have doubled, tripled and more in the past year.
  • Greg Howard, owner of McCabe's Tavern in Colorado Springs, told the Colorado Springs Gazette his bill spiked a whopping 600 percent.
  • A small commercial painting contractor say that her nine-person company's first quarter UI bill has gone from $1,000 to more than $6,500 over the past three years.

Source: Michelle Malkin, "Unemployment Insurance Kills Small Business," Washington Examiner, December 8, 2010.

 

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