Christie: Unemployment Taxes Will Rise In June

Gannett's Michael Symons is reporting that Governor Christie is acknowledging the inevitable unemployment tax increase that will occur in June.

This is largely the result of previous administrations and legislatures, Democrats and Republicans, raiding the Unemployment Fund to the tune of $4.8 billion since 1992.

This is not a new tax. Every year unemployment "premiums" are set based upon a statutory formula that includes the amount in the fund and the employers' "claims."

The very unfortunate reality is that this tax, even before the coming increase, contributes mightily to reduced employment. The tax is a percentage of payroll. For small businesses struggling to survive, this cost is real consideration in having to lay people off. For those who made it through struggle to recover and grow again, this cost is an impediment to hiring and re-hiring.

Unfortunately, Christie has no choice but to let this tax/insurance premium increase as scheduled. Even if the Obama administration bails out the fund, it has to be replenished.

However there are steps the Christie administration should take immediately to address the long term and short term viability of the Unemployment Insurance Program.

1) Take whatever legal steps are necessary to prevent legislature and governors from ever raiding this fund again. The fund should be set up as a real insurance trust fund with an prudent investment strategy that enhances the funds liquidity come the next crisis.

2)Improve claims management and fight abuse. Not everyone collecting unemployment benefits qualifies. I had an employee who was awarded benefits despite the fact that she had a full time position offered. Mine can't be the only business that this has happened to. There are people collecting benefits and not looking for work, as they are required to do. Some treat unemployment as a paid vacation. Others are working "off the books" while continuing to collect. There are those who's lives are set up to take advantage to the Unemployment Fund. Seasonal employees at restaurants along the shore often make enough in three - six months to live for a year. Much of that seasonal income is cash that is not reported and taxed. A system should be set up to prevent those who year after year after year make winter unemployment claims, when they are not really unemployed. They are really seasonal workers taking advantage of a loop hole.

3)Make Unemployment premiums/taxes "No fault." Currently, premiums increase for companies who have had to let people go, but only on a percentage of payroll currently being paid. Thus, the cost to hire or re-hire is increased based on the company's claim history. Businesses, large and small are forced to postpone hiring or resort to inefficient but creative (and legal) hiring and compensation practices to reduce their premiums. For example, setting up a new employment company with no claims history. Business owners almost never qualify for benefits, yet if take a salary they pay both the employee and the employer share of the unemployment tax on their own pay. Owners, especially of companies who have had to lay people off are forced to reduce or eliminate their salaries and compensate themselves in ways that are not subject to payroll taxes. For example, a business owner who also owns the property where the business operates can increase the rent to off set a salary reduction and save on unemployment taxes and other payroll deductions.

By making premiums/taxes "no fault" the system would elimiate a disincentvie to hiring, encourage business owners to put themselves "on the books" and reduce the incentive for inefficient/creative hiring and compensation. This might be unfair to those few, if any, businesses that have never had an unemployment claim. But those who have had claims can get the favorable premiums anyway through the creative methods discussed.