Poftak: Freeze the unemployment tax
You don’t have to be a genius to know that you get less of whatever you tax. And you don’t have to be an economist to know that now isn’t the time to tax jobs.
State senators from both parties recently called on Senate President Therese Murray to stop a scheduled increase in the commonwealth’s unemployment insurance tax. House and Senate Republicans have filed a bill to freeze the current rates and the House is taking up a spending bill that would also freeze the rates.
Unemployment insurance benefits are paid for by a tax on employers for every person they employ. Without the freeze, the tax would go up 31 percent, from an annual average of $715 per employee to $935. Technically, the hike took effect on Jan. 1, but it can still be rolled back, since employers don’t pay the tax until April.
Unemployment insurance is already one of the reasons why it’s more expensive to create jobs in Massachusetts than in almost any other state. The commonwealth’s benefits are among the nation’s richest, it takes the shortest time to qualify for them, and recipients can collect for the longest period. Adding to these costs now would threaten to snuff out the first signs of a fragile economic recovery.
The rate hike is also unnecessary. At the beginning of the year, the fund from which benefits are paid had a balance of nearly $100 million, which was projected to grow to a multiple of that even with the rate freeze.
Organized labor has been the one voice that has consistently opposed the freeze, claiming it “lets businesses off the hook” and doesn’t force them to live up to their responsibility.
But one way or another, the money to pay for unemployment benefits will come from employers, it is just a matter of timing. If state leaders won’t address the underlying factors that make unemployment insurance so expensive in Massachusetts, they should at least increase the tax gradually during good times, rather than dropping a 31 percent haymaker on businesses already staggered by a deep, four-year economic downturn.
Make no mistake, the unemployment insurance system is a tax on jobs. Workers need and deserve a safety net, especially in times like this. But we shouldn’t overreact and put in place a penalty that only produces more unemployment.
A 31 percent tax increase crosses the line. And that’s why freezing the commonwealth’s unemployment insurance tax rate should be a no-brainer.
Steve Poftak is Research Director at Pioneer Institute, a Boston-based think tank.
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