Businesses in New York continue to get hammered in a state that perpetuates an unfriendly atmosphere of high taxes. Now there is another tax. Some state business leaders claim it was inevitable and foreseeable. It still hurts.
This extra tax -- $21 per employee, due by Jan. 31 -- is to repay a debt to the federal government. The state borrowed more than $400 million from the feds to pay unemployment benefits. The federal tax, often called FUTA, is not paid by individual employees but by their employer.
Had the state repaid the money within two years, there would have been no new tax levied on businesses. But the state let the deadline pass without paying off the loan -- its fund went bust -- so the law authorizes the federal government to recoup its money by increasing the federal unemployment tax rate by 0.3 percent. The rate continues to increase by that amount every year until the debt is gone.
The state owes more than $570 million, and had been paying interest on the loan. The principal was due last week. So now the tax rate has increased retroactive to the beginning of 2004 -- a $150 million surcharge for all of this year will be due in one lump sum, along with employers' regular fourth-quarter tax.
It's not a crippling tax, but it is another example of why it's so difficult to do business here.
"If the state had followed prudent Unemployment Insurance financing guidelines, the state would have had enough reserves to avoid borrowing in the first place," Jason Dring, of the National Employment Law Project, said in an e-mail. "New York is the only state in the nation facing this special tax."
No one should be surprised that of all the choices available to it, the state chose to do nothing. When it was clear that the state was going to be unable to pay off the loan, it could have created a larger reserve fund to pay off a debt it knew was coming due. Or it can now float a bond and pay the debt over several years. Or it could -- yes, we know hell has not frozen over -- have cut spending and diverted the money to the fund.
Whether business has to pay the federal government or put more money into the reserve fund, it will end up bearing the cost. The Business Council of New York wanted, in 2003, to see the state float a bond for the debt and pay it back over a period of years by increasing the current state unemployment tax. Others believed a larger reserve fund would have better cushioned small business owners from this unexpected tax.
The bottom line, however, is this: New York's private sector employers will have to pay more, whether they're paying federal tax of $21 per employee in January 2005 and $42 in January 2006 or they're forking over a new additional state tax to wipe out the debt.
Those who are considering doing business in this state now have one more reason not to move or expand here.