Another Hidden Tax Increase On Employers

In an effort to replenish the unemployment-insurance program, an upcoming budget proposal from President Obama is expected to give states a way to collect more payroll taxes from businesses. There is no question the plan will be controversial.

The Wall Street Journal reports, the proposal would bail out state unemployment-insurance trust funds by raising the amount of wages on which companies must pay unemployment taxes to $15,000, more than double the $7,000 in place since 1983.

As with the health care reform law the claim will be, this plan will not cost employers more this year or even next. The plan assumes that in 2014 all job producing industries will be roaring along and adds this additional burden along with major portions of the health care act. The WSJ said this program is projected to increase payroll taxes by as much as $100 billion over a decade, according to their source.

Here is where you have to read the fine print. Elected state officials would be able to claim they have held the line or even slightly lowered the rates imposed on their employers. They would simply avoid mentioning the fact at an additional $8,000 per employee would be subject to the tax.

As a selling point, expect to hear that the federal unemployment insurance tax rate of 6.2% would be reduced so that the U.S. federal government would be taking in no more revenue than it does under the current system. While that could be true, the simple fact is the federal government would be using its partner in unemployment insurance, the states, to collect the additional tax burden on employers.

States that have seen their reserve funds wiped out and have borrowed heavily from the feds to pay the first 26 weeks of unemployment benefits, would use the additional taxes collected from employers to repay their debts. It should be noted that this plan is in addition to the unemployment-insurance taxes that over 40 states have already raised to cover their debts.

The plan is expected to be included in Obama’s budget proposal for fiscal 2012, to be released this coming week and would need congressional approval. ◆