In response to the state’s mounting $2.7 billion UI debt, the North Carolina Chamber of Commerce has produced a handy tool to quantify the negative impact on businesses if this were to be paid back through higher taxes. They note that such an outcome threatens jobs and an economic recovery, all while the state’s unemployment rate remains at 10 percent, the highest of all neighboring states.
To help you use the tool, since the calculator asks you for potential rates (along with your number of employees), I recommend these tax adjustments with specific targets in mind. This is going by the current annual UI tax intake of approximately $1 billion per year and payments of $1.25 billion (p.2).
To close the deficit would require at least a 25 percent increase to your going rate, from 4 to 5 percent, for example. Of course, that is a static calculation and does not account for a reduced tax base. Given a negative impact on the level of employment, closing the gap would actually require a larger tax increase.
To go further and pay the debt back within a decade (assuming a 4 percent interest rate) requires an annual payment of $330 million, over and above the closing of the shortfall. That translates to around a 60 percent increase in UI taxes—from 4 to 6.5 percent—and at this level the impact on employment is likely to become significant. To bring that home, an employer of 25 individuals would have to pay $12,750 more, or $510 more per employee.
However you dress it up, resorting to higher UI taxes to pay of the debt, incurred through gross fiscal irresponsibility over the past four years, will hurt employers and employees alike. The Small Business and Entrepreneurship Council has already identified the states high UI taxes as a concern, and with more generous benefits than all neighboring states North Carolina legislators would do better to look at how to tighten their belts—as I outlined in my report on this issue, “First, Stop the Bleeding.”