The Next Wave of Taxes on Business

John Ligon /

In an attempt to solve the nation’s current economic woes, legislators remain fixated on a single solution: federal stimulus spending. This is the wrong solution, regardless of the sweet rhetoric used by some Washington lawmakers, and is no economic stimulus.

Two days ago the Senate passed (62 to 36) another round of stimulus (this time dubbed a “jobs bill”) which, among other items, extends unemployment benefits for up to one additional year.   Unemployment benefits will now extend to two years under federal law which begs the question:  Are these benefits becoming a de facto welfare program?

Moreover, states and businesses have been bracing for the pain of financing these changes for a while now; State governments are already drawing on ‘loans’ from the federal government.

By 2012, States unemployment trust funds are expected to be fully depleted—at which time the federal government will have to replenish these funds with approximately $90 billion.

States are also turning to higher tax rates faced by employers in those states to cover the costs of these extensions.  States like Hawaii are floating a tax-rate hike as much as 600 percent, and 35 states will likely raise the unemployment tax rates faced by businesses.  Also, it will force many businesses, especially small businesses, to defense against rising costs at a time when the economy could be looking at an upswing.

Washington lawmakers have shown no restraint in financing stimulus programs with bloated deficit spending. These types of federal spending (or ‘stimulus’) programs have unintended consequences, notably, that they produce severe constraints on state budgets and higher tax rates faced by businesses. And, as Heritage scholars, James Sherk and Karen Campbell, posit:

Extended UI benefits reallocate resources within the economy; they do not create wealth or spur economic growth.  Increasing the debt burden on future taxpayers may have the appearance of a stimulus, but unless it increases GDP by more than is spent, it is not… Pumping debt money into the economy may appear as a stimulus while it is being spent because it eases some liquidity constraints—but 75 to 83 cents of every dollars of that spending is lost. Therefore, once the spending stops the bubble bursts because the increases in GDP were artificial.