The ranks of the unemployed have more than tripled in six months. State unemployment-insurance programs have paid benefits to tens of millions of idled workers in that time, helping them hang on until the crisis eases and they can get back on their feet. Understandably, debate has centered on the size of these benefits -- including the $600-a-week enhancement that the federal government paid to recipients through July 31. Few are talking about the automatic tax hikes that will finance these benefits as the economy recovers.
States tax employers to pay for unemployment insurance. These payroll taxes are adjusted to reflect the cost of providing their employees with benefits in preceding years. Because taxes are linked to benefits, employers throughout the U.S. will soon face steeply increasing taxes on employment, and taxes will be raised the most on companies in industries hardest hit by the pandemic.
The amount of each worker's earnings subject to these taxes differs by state, along with the range of tax rates. In New York an employer's tax rate could rise from as low as zero to a maximum of 7.2% on each worker's first $11,400 in earnings. In New Jersey the range is 0.5% to 5.4% with taxable earnings three times as high at $34,400.
After the 2007-09 recession, employers' average unemployment-insurance tax costs increased by 73%, with the largest increases landing on employers in manufacturing and construction. These tax increases may have contributed to the anemic recovery.
Read the entire Wall Street Journal opinion/commentary piece here.