The first two taxes on state businesses

Editorial, The Seattle Times
1/23/03

Olympia, WA - The rise in unemployment-insurance premiums is the state of Washington's second increase in taxes on business. It averages 12 percent. The first was last year, on the cost of workers'-compensation insurance, averaging 29 percent.

These increases are large. They act as drags on the recovery by raising the cost of labor particularly low-wage labor at a time when tens of thousands of workers are unable to find jobs.

The public tends to ignore these increases because they are invisible and automatic. They are the results of formulas set years ago. Like the minimum-wage formula, which has just bumped up the cost of hiring an entry-level worker, the unemployment and workers'-comp formulas are designed to cushion a certain population from risk. They do this, but by making it more expensive to keep a worker employed.

That is a poor way to encourage a recovery, but in the short run, there is not much to be done about it. Benefits are mandated by law and paid from specific funds. The unemployment fund has dropped from $2 billion in mid-2001 to $1.29 billion. The fund has to be protected.

What can be concluded? First, those who talk of raising taxes on business should be on notice that the state already has. Twice. Counting the minimum wage, three times.

With the unemployment rate at 6.8 percent statewide, those increases are enough. More than enough.

Secondly, the benefit formulas ought to be brought in line with other states. The minimum wage might be de-indexed, so that the real wage drifts downward in times of high unemployment. Workers' compensation might be opened up to private competition, which is allowed in most other states.

Regarding unemployment insurance, this state has one of the highest benefit levels in the country. Washington is one of only two states that pays benefits for 30 weeks. Almost all other states, including Oregon and Idaho, pay for 26 weeks.

It would be difficult to trim benefits now, when all the pressure is to extend them. But it has been true for many years that our benefit levels create a greater disincentive for a worker to look for a job, and for a business to hire a worker, than almost anywhere else in the nation. We are paying for that now.

 

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