Unemployment Insurance Tax Could More Than Double for South Carolina Businesses

South Carolina's 12.1 percent unemployment rate, third-highest in the country, could start affecting you next year even if you're not unemployed. State officials say it's likely the state will have to raise the unemployment insurance tax that businesses pay, which pays the benefits for people who lose their jobs. If businesses' taxes go up, they're likely to pass those costs along to you.

South Carolina's unemployment insurance trust fund ran out of money last year and the state had to start borrowing from the federal government to be able to keep paying benefits. The state has borrowed $390 million so far, a number that is likely to be about $1 billion by March.

So the state formed an informal task force to look for solutions. It's being chaired by John Rainey, chairman of the state Board of Economic Advisors. Also on the task force are state Treasurer Converse Chellis, Comptroller General Richard Eckstrom and the director of the Employment Security Commission. Gov. Mark Sanford, Senate Finance Committee chairman Hugh Leatherman and House Ways and Means chairman Dan Cooper are also on the task force but were not at Thursday's meeting.

Right now, businesses pay an unemployment insurance tax on the first $7,000 in wages that each employee makes. The task force discussed raising that wage base to $14,000 and raising the amount of the tax. The only other alternative is to cut unemployment benefits, which Rainey says is not a reasonable option.

"I would say there is no alternative but to adjust the rates, adjust the wage base, or some combination thereof," Rainey says. "It's got to be paid. It can't continue to grow and we can't continue to borrow money from the federal government." When interest on the borrowed money kicks in, if the state has borrowed $1 billion, that could be $50 million a year just in interest, he says.

The state is expected to reach $1 billion in loans from the federal government no later than March. Federal guidelines say the state should have $1.1 billion in its unemployment insurance trust fund. "So it's a $2.1 billion problem," Rainey says.

Small businessman Buddy Delaney, owner of Best Mattress in West Columbia, thinks raising the tax would have serious repercussions. "It's the last thing that small business needs right now, is an additional tax or an additional levy, which might cause small business to have layoffs or possibly not hire," he says.

Any tax increase is still in the future, though. The tax force will make recommendations to state lawmakers when they go back into session in January, because only the legislature can change the tax. The task force will meet again August 20.