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Get Ready For More Small Businesses To Shut Their Doors Or Move

I wrote a piece about the rising unemployment insurance costs for small business owners awhile back and now it is coming to fruition. Make sure to check out the percentile change for my home state, Hawaii. It’ll blow your mind.

Unemployment taxes slam businesses

NEW YORK (CNNMoney.com) — Employers are getting hit with a massive tax hike at a time when they can least afford it.

Companies in at least 35 states will have to fork over more in unemployment insurance taxes this year, according to the National Association of State Workforce Agencies.

The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold.

Many of these hikes happened automatically as prolonged joblessness triggered state laws governing their unemployment insurance systems. But at least seven states voted to raise their taxable wage bases, the level of income subject to unemployment tax. And another 10 are looking at upping the wage bases or tax rates.

The states are scrambling to restore their unemployment insurance trust funds, which cover claims.

State trust funds have been decimated by the Great Recession, forcing a record 26 states to borrow a total of more than $30 billion from the federal government. The numbers are expected to grow to 40 states borrowing $90 billion by 2012, said George Wentworth, policy analyst at the National Employment Law Project.

“States are going to be facing higher unemployment tax rates for some period of time,” Wentworth said.

In addition, employers pay federal unemployment taxes. If states don’t repay their federal loans, businesses could see their federal tax go up as well in coming years, said Rich Hobbie, executive director of the National Association of State Workforce Agencies.

Hawaii is already ranked 42nd in small business survival.  How many small business are going to hire more workers, if and when we start to recover, when their insurance rate will be over $1,000 per employee in comparison to say Texas with it’s raised tax of $64.80?  If you were a business person in Hawaii, would you be thinking of moving back to the mainland?

States suffering

Texas is one of the hard-hit states. Though its unemployment rate is a relatively low 8.3%, jobless claims have soared. In December, Texas paid 330,000 residents a total of $325.7 million, up from 228,000 people claiming $216.8 million a year earlier.

The state began borrowing from the feds in July to pay unemployment benefits and now owes Washington $1.6 billion, said Ann Hatchitt, spokeswoman for the Texas Workforce Commission.

So employers in the Lone Star State will have to pay at least $64.80 in tax per worker this year, up from $23.40 a year ago. This is the highest rate in 20 years.

“After having a period of high demand on the unemployment trust fund and rising unemployment, we had to set the rates for 2010 to replenish the trust fund,” Hatchitt said.

Employers in some other states could face even steeper hikes, unless their legislatures act quickly.

In Hawaii, taxes automatically increased from an average of $90 per worker in 2009 to $1,070 this year. Part of the problem stems from the fact that the state was generous to businesses during prosperous times. In fact, lawmakers lowered the tax rate in 2007, when unemployment did not exceed 3.1%. The state’s jobless rate now stands at 6.9%.

Concerned that this hike will crush local businesses, Republican Gov. Linda Lingle is urging lawmakers to limit the increase to 60% of the proposed hike.

“We believe strongly that anything beyond this 60% threshold will cause large job losses,” Lingle said last month.

2 thoughts on “Get Ready For More Small Businesses To Shut Their Doors Or Move

  1. Pingback: Search Businesses
  2. Having owned a small business in the past, I can tell you that there’s no way I would start one up again in this economy. Not a chance.

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