The state is asking business owners to dig deeper by raising unemployment insurance tax rates for 2010.
The Employment Security Department sent tax rate change notices to more than 17,000 businesses in December.
The average unemployment insurance tax rate this year is estimated at 2.38 percent, up from 1.55 percent in 2009. The taxes will apply to the first $36,800 of earnings for each worker.
The tax rates are recalculated each year using a formula established in state law.
Because the state had historically low unemployment from 2005 through 2008, the 2009 tax rates were the lowest in 40 years. But high unemployment coupled with record benefit payouts in 2009 is driving up employers’ tax rates in 2010. Even employers who have had no layoffs in the past four years will see higher tax rates because the benefit payouts far exceeded the taxes collected.
From July 2008 through June 2009, the state paid about $2 billion in unemployment benefits and collected about $1 billion in unemployment taxes.
Although the tax hike will only cost Brian Johnson, the owner of Motoring Services in Kennewick, about $900 over the course of the year, it’s another increase in the total cost of doing business, which makes it harder for small business to get through a recession.
“It’s just one more thing,” said Johnson, who has six employees. “Washington State is one of the toughest places to be a business in the country. When you look at what we pay versus what they pay in Oregon, it’s not even close.”
Johnson said the ever-increasing costs means business owners and managers must be diligent in watching costs and pinching pennies to keep the doors open.
“The marginally-operated businesses will go out of business,” he said. “Nobody is cutting any fat hogs these days.”
Steve Simmons, co-owner of The Country Gentleman Restaurant and Catering, will pay substantially more than Johnson in unemployment taxes in 2010 because he employees about 55 workers.
For Simmons, the amount of the increase isn’t as frustrating as the idea of it.
“We already have some of the highest unemployment taxes in the nation and it has a huge cash reserve right now,” Simmons said. “It’s taxes that have created that fund and I think we should enjoy a rate holiday or reduction.”
Simmons also said Boeing has played a significant role in what businesses throughout the state pay in unemployment insurance taxes.
“In 2003, new (unemployment) rates were negotiated to keep Boeing in the Northwest and keep them building the 787 here,” he said. “After that, the legislature started incrementally dismantling all the reforms. That’s one of the things I find most annoying. They negotiate a deal, pass a law, the governor signs it, then they systematically dismantle it.
According to the Unemployment Security Department, as of Nov. 30 there was $2.79 billion in the state’s unemployment trust fund — enough to provide about 14 months of benefits in a severe recession.
Increasing revenue collections for the shared costs of the unemployment system now will slow the decline of the unemployment-benefits fund and help avoid sharper tax increases in the future, said Karen Lee, Employment Security Commission.
The recession has demonstrated that Washington’s unemployment insurance system is one of the most stable in the country, she added.
“So far, more than two dozen states have drained their unemployment funds and have racked up billions of dollars in federal debt to pay benefits,” Less said. “After the recession, those states will have to doubly tax their employers to pay off their loans and also replenish their unemployment funds, while also paying ongoing claims — and that will be a competitive advantage for businesses in our state.
Employers paying taxes in January are filing for the last three months of 2009, so they should continue to use the 2009 tax rates. The new tax rates will be used to calculate taxes that are due April 30 for the first quarter of 2010.
For more information, go to esd.wa.gov.
by Mary Hopkin
Tri-Cities Area Journal of Business
