SC Businesses Might Pay More to Cover Jobless Benefits

South Carolina businesses might have to start paying more taxes over the next few years to rebuild the state’s unemployment trust fund. An informal task force has come up with draft recommendations to give to state lawmakers that would raise the unemployment insurance tax that businesses pay on every employee.

The state’s unemployment trust fund, which is used to pay benefits for those out of work, ran out of money last October, so the state has been borrowing from the federal government to keep paying benefits.

“By some point next year, we will owe them at least a billion dollars,“ says John Rainey, chairman of the state Board of Economic Advisors and the informal task force looking at the unemployment trust fund. “The laws today require us to recognize that we’ve got to pay back this debt, and it doesn’t give us any options,“ he says. “The only option we have in this whole scenario is how do we replenish our trust fund?“ 

To pay back what’s been borrowed, he says the federal government in January 2011 will start reducing businesses’ federal tax credit for state taxes paid. It’s expected to take until the end of 2019 to pay back all the money. State taxpayers will be responsible for the interest on that loan, which is expected to be about $350 million.

To replenish the trust fund, the plan would double the taxable wage base on which businesses pay the unemployment tax. Right now, they pay on the first $7,000 of an employee’s salary, which is the lowest allowed by federal law. The plan would double the base to $14,000, which is about the median for the other states. The plan would also add one percent to each level of the tax structure, which is based on how often a business uses unemployment insurance. Because that varies, businesses would pay anywhere from $249 to $567 more for each worker per year.

Otis Rawl, president and CEO of the state Chamber of Commerce, says the plan would make the state’s high unemployment rate even worse. “Right now, we’re trying to keep as many people working as we can, and to put another business cost on us in these times would be traumatic for the business community.“ 

He says he realizes businesses will have to pay more, but he first wants to see the system reformed. For example, he says workers who receive severance packages when they lose their jobs shouldn’t also receive unemployment benefits. He also wants to see benefits eliminated for anyone who’s fired for drug use or missing work. And he says someone who just quits must either have another job or not want to work, so they shouldn’t receive unemployment benefits.

Small business owner Randy Pardee runs the heating and air conditioning business his grandfather started in 1937. He already had to lay off two employees recently because of the economy and says higher unemployment taxes would make things worse.

“I would hate to have to layoff a skilled employee, because, you know, it’s so hard to find a good, dedicated, skilled employee,“ he says. “But I can see that it could lead, with more increases, it could lead to laying off skilled employees.“

Rainey says he realizes that taking $2 billion out of the economy will have a huge impact. That’s about 35 percent of the entire state budget, and is $2 billion that businesses can’t use to expand, hire people or buy new equipment. But he says he has to sound the alarm about the need to take action on replenishing the trust fund and paying back what’s been borrowed.

He says, “We’ve got a crisis, and the crisis comes in the middle of the worst downturn in the economy since the 1930s.“ 

It’ll be up to state lawmakers to take any action.