One of the most unfortunate aspects of the current economic downturn is the ever rising unemployment rate. Businesses across the country have been forced to cut costs in the face of diminishing profits, and often labor costs are the first to face reductions. For the month of August, the national rate was 9.7 percent. The so-called stimulus efforts by the current administration have done nothing to slow and reverse this trend. Government policies have done little to help out-of-work Americans, but what about when the policy itself contributes to the problem?
Such is the case in Maryland, where employers can expect a drastic tax hike in the coming days. A 2005 state law requires the state’s Department of Labor to review the Unemployment Insurance Trust Fund at the end of each September. If the fund is below a predetermined threshold, an automatic increase in the Unemployment Insurance (UI) tax rate is triggered. This past year, UI taxes doubled, from 0.3 in 2008 to 0.6 percent in 2009. The maximum tax rate is 2.2 percent.
Maryland Secretary of Labor Thomas E. Perez stated “it’s pretty clear” that the state will raise taxes to the highest bracket. This means that every employer will be required to pay, at minimum, $136 of UI for each employee. This is nearly a four-fold increase for employers that would pay the minimum rate. Furthermore, companies with the highest rates of layoffs, who are already struggling in this economy, will be forced to pay at a higher rate – as much as $383 per employee. The employers who are most adversely affected by the current economic downturn are most adversely affected by the tax policy.
In lean economic times such as this, employers can not afford the burden of more taxes. Maryland’s UI tax policy forces employers to cut costs even more, meaning more workers will become unemployed. Or worse, a business will have to close its doors, causing the entire firm to lose their jobs. In an effort to fund its Unemployment Insurance problem, Maryland makes more people unemployed.