A 500% tax increase is a real possibility for Washington businesses
Before the state Legislature arrives for the 2021 session, some businesses in Washington will already be facing the very real prospect of a 500% tax increase.
That’s on day one, before lawmakers even begin to talk about passing new taxes like an income tax, a capital gains tax or a tax on high-income earners.
And it’s coming at a time when most employers can least afford it.
The looming crisis is related to the state’s unemployment insurance system. This past spring, as the novel coronavirus began to spread, Washington shut down a significant portion of its economy, meaning hundreds of thousands of people became unemployed almost overnight. The state’s unemployment rate rocketed from 4.2% in February to 15.8% in April.
About half of those jobs had returned by September — before another wave of layoffs was triggered by new restrictions imposed on businesses in November — but the impact on the unemployment system is unprecedented. By the end of the year, officials estimate Washington will have paid out approximately $5.3 billion in unemployment benefits, compared to just $1.01 billion in 2019. This was before the November restrictions went into place.
This is the system working as it is supposed to work. Washington’s unemployment insurance program is designed to be a safety net for workers who lose their jobs through no fault of their own. A global pandemic and the abrupt shutdown of major parts of the economy is certainly no fault of those who have become unemployed.
But it’s also no fault of the businesses, and unless lawmakers take action to head off the looming crisis, it could be a disaster for many employers already struggling to survive. That’s because after paying out more than $5 billion in benefits, it will soon be time to replenish the state’s unemployment insurance fund. And it falls entirely on employers to do the replenishing.
For many businesses, this will mean dramatic increases in the amount they pay in unemployment insurance taxes. The numbers will vary based on industry, but it’s possible that a business could go from paying $50 per employee in unemployment insurance taxes to $277 per employee.
This kind of increase will likely trigger more layoffs, leading to a downward spiral that puts even more strain on the unemployment insurance system and delays the economic recovery we desperately hope to see in 2021.
The COVID-19 pandemic is both a public health crisis and an economic crisis the likes of which we haven’t seen in more than 100 years. Recent news about vaccine development is encouraging, but we don’t expect the recovery from either the public health crisis or the economic crisis to be immediate.
One of the best ways that legislators can help employers is to follow the lead of doctors and seek first to do no harm. Hard-hit businesses will need help recovering from this once-in-a-century crisis. Lawmakers can jumpstart the recovery by not saddling employers with additional taxes and regulations at such a precarious moment.
And they can provide a huge boost to struggling employers by heading off the looming unemployment insurance disaster.
Lawmakers will be facing many challenges when they convene in January. Unemployment insurance must be at the top of their to-do list. Employers need assurance that help is on the way.