The Unemployment Tax Dilemma
by Tom aka Rusty Rustbelt
The Unemployment Tax Dilemma
When the economy is doing well employers pay both state and federal (backup system) unemployment taxes. The rates tend to be reasonable and are levied only on a portion of wages.
During recessions the employers who keep workers on are in effect penalized because all rates will likely go up somewhat. Many states also use an experience rate, so the businesses shedding jobs will be paying a higher rate in the future.
In the “great recession,” now dragging into a fifth year, the employers still in business are seeing accelerating rates, thus creating a penalty on employment (varies by state).
The system is designed for a “regular recession” and not for a “great recession.” How do we do this so we don’t penalize hiring? Ideas welcome.
FYI: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=541
First, regarding Unemployment Taxes – the whole thing should be optional. If the employee wants it … the percentage is deducted from his wage and he is enrolled. I personally think the whole insurance thing is one huge scam. Let me put that money away for a rainy day fund, and take the middle man with the gun out of the equation.
By levying taxes on employment, society encourages lower employment–and of course higher use of labor-saving devices. Unemployment taxes, disability, SS, health care requirements all tend to deter employment. Why not make those things funded generally? Yes, a political problem as to how to do it. But conceptually, it would be better as I do not see any moral hazard issues
talking about “penalizing employment” is brain damaged.
you hire a worker if he makes you money. if you can’t afford to pay him a living wage… and living includes retirement, health insurance, and unemployment insurance… then your business is not worth enough for society to support it.
the fact is the people moaning about “penalizing employment” just want it all for themselves. let the workers starve when they cant find work, are too old to work. or can’t afford a doctor.
the reason there has to be a government gun, is because neither the employers nor workers like “anonymous” are smart enough to figure this out. they can’t get past counting the nickels on the table “today.”
Coberly, You and I disagree a fair amount–I think I tend to be a bit more of a hard a** than you, but you nailed the issue. It does cost money to obtain labor and part of that cost is keeping the worker alive and healthy, providing something for when the worker can no longer work and paying something toward the”rainy day “fund. And here is the thing which is at the heart of the problem in the U.S. today–When capital does not pay these things then demand for the products and services goes down and less workers are hired. Instead of government regulations being on a tax on hiring which discourages employment, the regulations serve capital by supporting demand for the products and goods produced.It is my point on social security–every time the politicians talk about “reform” I try and save a little more as I am sure most thinking people over 50 do. When my wife says “lets go out to dinner” and I say I would rather not spend the money, it hits gdp and employment. I am a lot less likely to say “I would rather not spend the money” if I felt more secure about the future–ie social security and medicare in my case–health insurance, unemployment insurance in the case of younger working people.
Based on coberly’s criteria, I would estimate that 80% of the businesses with less than 25 employees would be shut down the past four years, if they existed at all (especially on the retirement plan criteria).
Tune in to reality please.
An aspect of rising payroll taxes is the declining payroll do to a 35year drive to reduce wages.
The rate has to go up if people are earning less in an inflation economy.
But, don’t worry about unemployment taxes. That will level out and reduce now that We the People have decided to dump those long unemployed from unemployment.
Rusty, I get what Colberly is saying. It was the “social contract”. Granted you can not suddenly reimplement it after 35 years of deconstructing all the political and thus economic institutions and policies that made it financially viable.
As has been noted by me and other’s here, the plan of the rich for making their money is killing everything. Had they just let the laborer win the class war, they would have been better off. Including those business owners with 25 or less employees.
Unfortunately, I have been talking with too many “business owners” that heartfully think Romney is the better choice because Romney is a business man…”just like me”.
Ha!
Dan:
With Dale’s criteria the overwhelming majority of small businesses never met the “social contract.” That includes the businesses (bakery, auto service station,propane gas business, etc.) that moved our families into the middle class).
Think about this – putting the small businesses out of business simply gives more or the market to large corporation, you know, the evil ones.
rusty
well, you look at it from the standpoint of the slave owner. the reason for workers is to make money for me. to hell with whether they can live on what i pay them.
don’t think i don’t understand the small business owner struggling to make it, and hiring an employee for less than that employee’s true cost of living… though enough for his needs that day…
but that is a little different from the organized idiocy that talks about “penalizing hiring.”
if the employer were honest, and we both knew “we are in this together” and that to the extent the business “makes it” wages will rise to a decent level… we could make this work…
but honest employers are a thing of the past, if they ever existed. most of them are quite happy with pfree market rationalizations that encourage them to squeeze the worker… and then wonder why the workers are ‘lazy.’
“80% of the businesses with less than 25 employees would be shut down the past four years”
Four years is certainly the wrong time-frame to access the business, but coberly is correct (unless he did not go far enough). Those businesses that don’t pay salaries high enough to allow workers to save for retirement AND profit enough to pay taxes are a drain on society.
Of course, most businesses are failures. As long as enough of them succeed spectacularly, capitalism will work out.
“That includes the businesses (bakery, auto service station,propane gas business, etc.) that moved our families into the middle class).” s.t.r.
Even assuming that Rusty’s 80% figure were valid it does not negate Dale’s contention that the business has to stand on its own strength in the face of the cost of doing business. What else is employee compensation, including the fringe, other than a cost of doing business? That’s the “free market,” which in this case includes whatever influences the government may inject into that market. In the case of employment issues the government is acting in place of the individual employees to assure a fair return from their labor.
You can’t take the government out of the concept of a free market when the government is probably the biggest participant in that market playing many different roles. The small business “moved our families into the middle class”? I don’t think so. Employ lots of Americans? Sure, but at what level of income? Middle class income? I don’t think so unless only the owner of that small business is being counted.
Another point occurs to me every time I hear all the vaunted comments about the small business owner. Note Rusty’s examples, bakery, automobile service station and propane supplier. Mostly businesses with a significant amount of cash revenue. I sell to them every day, doctors, attorneys, retail store owners, plumbers, electricians, etc. They all seem to have an inordinate amount of cash (always just shy of $10,000). Or they have the business pay for the lease of the item. As some of you may know the items are expensive cars. Tax avoidance, small business is thy name. When one group is able to avoid paying their full/true tax liability all the rest of us have to make up the slack.
STR:
The rates are up because the Federal Givernment was making loans to states to continue UC and the Gov. expects to be paid back by the states. No one expected the Unemployment conditions to continue, no other stimulus other than the initial Obama stimulus was applied, and aid to states was cut off by the Republicans in both the House and senate. This is no surprise as the UC funds must be replenished and the loans paid back. Michigan has one hell of a big hole.
I would suggest the OEMs kick in a larger portion as their poor planning of product certainly contributed to their own demise. If the Republicans would allow, much of the loans could be canceled and called state-aid. Wall Street’s collapse due to gambling and Main street bailing them out should be paid back by them in negating these loans to the states.
One question and it would be the same one Stormy would ask you: “Is this the part of China and Asian Overhead you like the best, the absence of UC for Labor?
Wow, I thought liberals and especially Democrats loved small business. Now we know.
you look at it from the standpoint of the slave owner.
Coberly, you owe me an apology. That is beyond the pale.
Jack, stand on principle and refuse to sell to the scoundrels.
run:
I am in favor of a strong UC system. What led you to believe otherwise?
The system was not designed for an extended “great recession” and there are unintended consequences. I asked for ideas to fix the problem.
For what it’s worth, Martin L has the solution. Unemployment insurance offers broad social benefits, as well as narrow personal benefits to the unemployed and there families. Such benefits belong on the general fund. It is a historical accident, similar to the accident that puts health insurance payments on a pay stub, that runs unemployment premiums through the employer. That Martin’s point has not gotten much attention when it’s a clear response to the question is odd.
Anonymous pretty clearly doesn’t know the meaning of the word “scam”, but might want to look up “free rider”.
Of course, “society” doesn’t “support” firms. Well, at least it’s such a vague statement that there’s no hope of having a clear discussion based on it. It’s just a way of making claims about how things “ought to be” rather than how they are. The fact that the phrases “penalizing employment” and “penalizing hiring” are often waved around by right-wing flacks doesn’t change the reality of the labor market. Coberly belittling anybody who points out a truth he doesn’t care for (“brain damage” and “idiocy” today are just part of a history of such behavior) suggests coberly can’t make his argument stick. Sort of a Fox News way of dealing with ideas.
I’m really confused now. I though a major reason that it is hard for small businesses to pay people more and/or provide better benefits was lack of profit. To me that screams price. So WalMart sells t-shirts from low paid labor centers. People that once might buy three or four t-shirts a year suddenly are buying three or four a month. The local vendor of clothing cannot compete even if he can get t-shirts as cheap as WalMart if he cannot price labor competitively. That is very difficult even at equal wages and no benefits. He is small and his profit/item sold simply doesn’t fit the economy of scale that WalMart enjoys.
Now I find out the problem is UC/benefits.
Does Amazon sell flowers?
kharris:
“Martin’s point has not gotten much attention when it’s a clear response to the question is odd.”
Next you will be saying Direct Labor costs in the cost of Mfg. are not the reason for companies moving to China where such things as UC, Healthcare Insurance, OSHA, EPA, Child Labor laws, OT Laws are nonexistant or minimal at best. After all Materials is a constant for the most part. So it is either Unburden Labor costs or Overhead costs. Whether the Overhead is collected in taxes on companies (which doesn’t appear to be that much these days) or people; it is still going to be a tax burden.
Why not suggest to companies the cost of selling product in this country, the largest consumer country globally, are precisely these taxes.
Rusty and kharris
i get tired of people with thin skins. i use phrases at times intended to wake people up to the nonsense they are spouting. i am sorry it hurts your feelings. i would suggest you pay more attention to what you are saying if you are going to suffer real pain if someone tells you what he thinks about it.
no, Rusty, I do not owe you an apology. and i wonder if kharris understands the phrase “pot calling the kettle black.”
coberley:
Maybe you should stick to the real (narrow) point of the post and offer some solutions instead of an anti-business rant.
Please tell me if:
1) the unemployment funding system should remain status quo, or
2) there is a better way
“The system was not designed for an extended “great recession” and there are unintended consequences. I asked for ideas to fix the problem.”
From my perspective, this is just another step in the path-worn process of capital outsourcing its cost centers to government, then bitterly inveighing against the size and cost of government.
Sure, businesses can’t be competitive if they have to educate and train their own workers. Or provide for their retirement. Or provide for their health. Or now, apparently, provide for their welfare should they be fired.
And of course, at the same time the taxes are way too high.
To the extent that I resist despair that the question might have been honest, you can index the UI employer rate to state or national unemployment and make allowances thereby, even if employers must lay off. To the extent that this cyclical change would have to accompany an increase in rates in good times, it would probably be a non-starter.
But again, the process seems disgustingly familiar.