Yes, Virginia, there’s a tax increase in your future
By Norman Leahy | Monday, August 22nd, 2011 | Catch-AllAnd in your present, too, as Virginia businesses are paying higher unemployment taxes for each worker on the payroll:
In an update to the state Commission on Unemployment Compensation on Friday, Employment Commissioner John Broadway said unemployment rates are improving, but employers will see their average unemployment tax peak next year at $229 per employee.
That’s up from $99 per employee in 2008. The tax is intended to replenish the fund from which unemployment benefits are paid, so the lower that fund gets, the higher the tax. And even though unemployment rates have improved, it will take several more years to refill the fund.
That’s a hefty increase in anyone’s book. At the margins, it might be enough to curtail hiring.
The state, too, has taken a hit as it’s had to borrow (and has mostly repaid) hundreds of millions of dollars in loans to the (bankrupt) federal government to cover unemployment benefits.
The only way to lower the tax is to replenish the unemployment fund. And the best way to do that is through economic growth…which means policies that encourage growth rather than stymie it.
The President has promised that he will unveil (yet another) plan to get the economy moving after he’s finished with his vacation. The early indications are that he will call for extending the payroll tax cut and call for more federal spending. It’s a political calculation more than a plan. And if it happens to bear an uncanny resemblance to certain elements of the nearly-trillion dollar stimulus plan that was supposed to keep the national unemployment rate below eight percent, you would be right.
Far more than whatever plan the President presents are the looming super committee negotiations on additional savings in the federal budget. if that committee fails, automatic cuts will occur. As half of those cuts would be in defense spending, Virginia’s defense-dependent economy could be kneecapped — thus making those higher unemployment insurance taxes on state businesses even worse.
Just one more reason for Virginians to keep a very close eye on the super committee’s work. If that group of worthies can’t reach an agreement, the commonwealth’s public and private sectors will pay dearly for it.
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About the author
Norm Leahy has written about Virginia and national politics online since 2002, beginning with One Man's Trash (OMT), and continuing through Bacon's Rebellion (both the blog and the e-zine), Sic Semper Tyrannis, NBC12's Decision Virginia, Richmond.com and Tertium Quids. He is the chief blogger at "The Score" and a producer of "The Score" radio show as well as being a Washington Post contributor.
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12 Responses to "Yes, Virginia, there’s a tax increase in your future"
Yes Norman, perhaps you would agree that Congress is on vacation as well. I guess the insults continue for the President but not the republicans in Congress. But to your point; whether an agreement is reached by the super committee and adopted by Congress, or not, we here in Virginia will feel the pain of more government cuts, yet we can and should do more in terms of investment in infrastructure, education, and research to stimulate jobs in the new economy. Frankly, the McDonnell plan of cuts and borrowing may please his base, but our crumbling roads, bridges, and tunnels, the higher tuition at our universities and colleges, the Cuccinelli pressure on research universities to engage in political witchhunts, and the strangulation of cities and counties, do not bear well for the continuation of our business friendly reputation.
When Congress isn’t in session, the Republic is safe.
Norman writes, “if that committee fails, automatic cuts will occur. As half of those cuts would be in defense spending, Virginia’s defense-dependent economy could be kneecapped — thus making those higher unemployment insurance taxes on state businesses even worse.”
Defense cuts are necessary, and inevitable. I have often wondered why it is that Republicans are so adamantly pro-Defense in terms of spending, I mean they will fight tooth and nail to avoid defense cuts even now when we are in a severe economic downturn, even when defense spending is such a huge (and growing) part of our debt. Fighting against defense cuts is not a grass roots concern, it is a Republican establishment sacred cow and is one of the things that makes it so obvious that the establishment is heavily influenced by special interests. Keeping defense spending intact isn’t something that your average conservative is pressing the Republican party for, it is something that the Republican party has pushed top down to try to convince your average conservative to go along with. Keeping defense spending so high is in direct conflict with the TEA party agenda to keep taxes under control, you simply cannot balance the budget with entitlement cuts alone.
Defense cuts must happen, but I think the bulk of the cuts should happen overseas. But cuts will hurt Virginia.What I also worry about is Virginia’s pension system, since it isn’t funded adequately.
News flash for everyone: Defense cuts have already been made and are continuing. We just don’t know how far they are going to go. Much of that depends on the Supercommittee. If they don’t agree on the target amounts, something that I sincerely doubt that they will do, then the auto-trigger cuts will decimate Defense spending. BTW, the amount of the Defense budget that is spend overseas, including Iraq and Afghanistan, is the tip of the iceberg, about 20%. The vast majority of the budget, over three-quarters, is spent in modernization, industrial (depot), and personnel accounts. That is where the Defense cuts are going to hit, particularly in our Virginia-based Defense contractors and our resident military population. DoD is already planning Reductions-In-Force for next year that will follow the Irag and Afghanistan withdrawals. That will put a drag on Virginia job creation, increase unemployment, increase state benefits costs for unemployed persons, and decrease state revenues in taxes at all levels, personal income, corporate, property, and sales. And the second- and third-tier effects on the local economies will be visible and painful. Watch for closed storefronts, restaurants, car lots, and grocery stores–all job creators for lower income wage earners. And, in turn, that will lower the income of everyone in the professional trades, from accountants to dentists. More negative pressure on eating out, buying new cars, and other consumer spending.
As the lyric from “Jesus Christ Superstar” goes, “I see bad things arising…”
HisRoc,
I’m a bit surprised at your lack of faith in the ingenuity of our legislators. Didn’t you know they can turn $350 million in cuts into the number 38 billion? If you don’t think that’s impressive they can turn $9 billion in cuts into the number 1 trillion. In the first case they did it with accounting genius and in the second they did it with high hopes in their ability to predict the future. So lets do the math. In the first case that’s 0.92% and in the second case that’s 0.9%. Do we see a pattern? Now which widget on the depot shelf will be affected?
val,
I share your cynicism. Somewhere in the last day or so I read a really telling observation: tax increases are always immediate; budget cuts never materialize. This speaks to the political reality that our legislators cannot be trusted with increased revenue that supposedly is balanced by spending cuts because they will find ways to spend the increased revenue on anything other than reducing the debt. And like teenagers in the mall on Saturday, they will keep running up debt as long as their credit card isn’t maxed out. That explains why the Gallup Poll in July showed that 44% of Americans did not want the debt ceiling raised while only 22% did. (The other 34% apparently responded, “what debt ceiling?”)
However, I am afraid that the Ponzi Scheme known as Federal borrowing is finally coming to an end. And the resolution is going to be far more painful than the 08-09 recession ever could be. I called my investment adviser the other day and asked him where I should put my 401k funds. He responded, “canned food and ammunition.”
BTW, can someone at Bearing Drift put a cap (and an IP address block) on this Bob Shiller spammer?
I see that Bob Shiller has vanished like the Nationwide deductible. Bless you.
Not quite gone HisRoc, you just need to know where to look. Although I did wish him a fond farewell.
“At the margins, it might be enough to curtail hiring”
That’s BS. You’re saying a $229 unemployment tax per employee is going to curtail hiring. That’s up from $99 or $130 more than 2008. An extra $130 isn’t going to prevent hiring.
“As half of those cuts would be in defense spending, Virginia’s defense-dependent economy could be kneecapped — thus making those higher unemployment insurance taxes on state businesses even worse.”
Virginia already receives $1.50 for each $1.00 we pay in Federal taxes; we should be bearing the brunt of the deficit cuts. And the 18 states that subsidize us should be demanding an equal share of their money.
HisRoc,
An interesting thing with leftists like Tor or MB is that they keep coming back with the same idiocy over and over again. “Na NA $1.50 to $1, Na na 1.50 to $1″ ToR obviously read something about the Big Lie. Or they simply follow the tactics handed to them by the DNC, Media Matters or the Daily Kos. So no matter how many times he gets his “BS” handed to him he finds a new ribbon to tie around it.
But we can play that game too. See below.
HISROC said
ToR,
That is a tired, old talking point that misrepresents the facts. Virginia receives Federal payments for hosting government agencies and being the home of Federal contractors. That Federal money is earned, not gifted or earmarked. And it has no relationship whatsoever to the amount of Federal tax that Virginians pay.
Is that the best you can do, bunky?
Val said
TOR,
Can you grasp the difference between an individual and a state?? In your imagination each state sends money to the Feds and then the Feds send it back to the State capitals. You cackle that some “blue states” send their precious tax money to the feds who in an act of generosity give it to benighted red states. This is just a regurgitation of leftist website tables that you don’t understand very well.
The tax money comes from individuals and corporations. Believe it or not the states cannot print money unlike Bernanke.
The individuals and small businesses who get taxed pay according to a progressive schedule believe it or not.
For your convenience, I provide the following table:
Top 1% $380,354 pay 38.02% of total income tax revenues
Top 5% $159,619 pay 58.72%
Top 10% $113,799 pay 69.94%
Top 25% $67,280 pay 86.34%
States with rich citizens have to contribute the bulk of the income since the top 5% do 60% of the total. The distribution of a relatively few very rich people accounts for the majority of discrepancies between states (eg Hollywood, Silicon Valley, Microsoft, Boeing, Wall St etc.) Most of these richer centers arose prior to the control of leftists and socialists in these states or the leftists give them waivers from their regs (as with Obamacare). Under Obama as a result, the Dems attempted to fund the Blue States’ governments directly in various stimulus packages as they go bankrupt.
People up to very recently worked in the North and retired in the South. Thus they would pay into the Federal government in the North and receive retirement related payments (ie SS and Medicare/medicaid) in the South. In addition, the military is mostly in the South for operational reasons
Most of the Blue states in the tables you reference became prosperous while being run by conservatives and Republicans. They have become indigent while being run by leftists (a State can be bankrupt even with rich citizens you know). Leftists are economic termites who use a prosperous capitalistic economy to raid the treasury for income redistribution and then corruption. Some states are a bit better at reserving economic conservatism for themselves while exporting leftism to the Feds.
In addition, these rich folks “coax” your Dem legislators for all kinds of policy favors that result in big bucks that they extract from the public or just compensate them for the cost of the leftist regs. (not excluding Repubs too but they have controlled Congress fewer years since WW2 and are not leading the process). Did those AIG bonuses that Obama secretly engineered and paid in 2009 show up in Federal outlays to states?? What about those massive tax breaks for Govt Motors?? Hmm?
There are other confoundments and finagles in the data but you get the idea or not.
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