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Fast Track Expected For Unemployment Insurance Reform

Business owners in the state of North Carolina have been increasingly feeling the crush of the cost of unemployment taxes following the economic collapse in 2008.

Small businesses have been especially hard hit in keeping up with this tax burden as the rolls of the unemployed have swelled to record numbers.

When politicians say it’s up to North Carolina’s businesses to hire again so the economy can recover, they mean people such as Cindy and Dave Schulz.

The Schulzes have worn the designation of small-business owner with pride, but now they say the pressure on their shoulders is getting too heavy.

Their unemployment taxes have gone up the past two years as the federal government seeks to collect from employers what it has been unable to collect from the state. The rates will continue to climb each year until the state settles its $2.5 billion debt to the federal government for jobless benefits. And because the Schulzes laid off workers during the recession, their state tax rate climbed, too.

Schulz Iron Works’ unemployment insurance rate increased with the layoffs and is now at 3.24 percent, up from less than about 2 percent before the recession. The company pays nearly $25,000 to the state in unemployment tax annually.

Unlike state and federal income taxes, the unemployment tax is not withheld from workers’ paychecks but is instead paid directly by employers. With the new law expected to pass this spring, the Schulzes’ business is likely to see another slight increase in state unemployment tax – about .06 percent, or about $440.

Hopefully for the Schulz’s and other employers in the Tarheel State, the General Assembly is poised to take quick action.

A draft bill is awaiting introduction this week, and lawmakers appear willing to thwart a new federal law blocking states from altering their benefit systems.

The GOP-written measure would cut maximum weekly benefits by a third to $350, make jobless workers wait an extra week before receiving their initial checks, and reduce the weeks of benefits from 26 to a sliding scale of 12 to 20, depending on the state’s unemployment rate. The state also would raise the unemployment tax slightly on most employers.

“If you look at this bill as a whole, there’s pain for everybody,” said state Rep. Julia Howard, the bill’s sponsor. “There are no giveaways here.”

Employers pay for the benefits through federal and state taxes. The federal levy is expected to rise by $21 per worker per year until the debt is paid. The state’s jobless rate is 9.2 percent, the fifth highest in the nation.

One of the statewide business groups advocating quick action is the North Carolina Chamber of Commerce.  The Chamber notes that the problems with the Unemployment Insurance issue have become severe for the state.
  • North Carolina owes $2.5+ billion to the federal government – 4th highest in U.S.
  • Interest on loans taken by NC to meets its UI obligations continues to accrue
  • UI program is funded solely by employers through state and federal unemployment payments
  • Unpaid debt is triggering mandatory federal tax increases on NC businesses that threaten jobs and economic recovery
  • Federal flat tax increase of 0.3% to Federal Unemployment Tax Act (FUTA) rates automatically occurred in January 2012.
  • FUTA taxes will continue to increase by an additional 0.3% each year until the debt is paid off
  • Employers will face an estimated $548 Million FUTA tax increase by 2018 if nothing is done

Unemployment Remains High in NC

  • Record-high unemployment and a protracted economic recovery – approximately 450,000 North Carolinians out of work
  • NC 10% unemployment rate remains above 8.5% national rate
The Chamber recently commissioned a study recommending ways that North Carolina’s Unemployment Insurance (UI) Trust Fund can return to a position of solvency and strength in the future.  The Executive Summary of this report can be found here.

Bruce Carroll

Bruce has his own blog, GayPatriot.org and is active on Twitter as @GayPatriot. Bruce lives near Charlotte, NC and enjoys country music and his three dogs.

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Categories: Economy
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