How did this happen? A tax cut for virtually every business. Is it a Washington first, or did they just screw up and miss the opportunity to continue to squeeze money out of our small-business dealerships?
I’m referring to the expiration of a 35-year old “temporary” unemployment surtax that actually expired last week. Haven’t heard anything about it? Not surprising – after all, the daily news from Washington is all consumed by the raging budget/debt ceiling battle. Halleluiah, this one got away from them!
In a nutshell, a 0.2 percent surtax on the first $7,000 of an employee’s wages was passed by Congress in 1976 as a “temporary” surcharge paid by employers (not workers) to help pay for unemployment benefits. What a great textbook illustration that once Washington passes a tax increase, even a “temporary” one, it’s not likely to ever disappear. This one was “renewed” at least eight times and President Obama proposed making it permanent which, fortunately, Congress has disregarded.
Accordingly, the expiration of the surtax lowers the federal unemployment tax rate from 0.8 percent to 0.6 percent for employers. Admittedly, this 25 percent ($14 per worker) reduction doesn’t mean big bucks for most dealers (Wal-Mart with 1.4 million employees will reportedly save $20 million annually) but it does effectively lower the tax from $56 to $42 per worker each year, and any tax break for small businesses these days should be applauded.
It’s notable that these federal unemployment taxes are paid by employers in addition to higher state unemployment taxes, which have been increasing in many states. The state taxes cover the unemployment benefits while federal unemployment taxes provide loans to states when their unemployment funds are depleted. Also, the federal taxes help pay for any federal extension of benefits in times of high unemployment, like now. Moreover, since the reserves in the federal fund have been depleted since unemployment skyrocketed and benefits were extended, the federal unemployment benefits these days are being paid out from general funds and that, of course, adds to the federal deficit.
Still, it’s good to pause and be pleased whenever we get a tax reduction that directly goes to our business. After all, unlike most business taxes that are paid based on profits, unemployment taxes are not and, therefore, are the worst kind of tax burden.