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.