Poftak: Freeze the unemployment tax

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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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