Small-Biz Killers: Who Pays for Jobless Benefits?

There is no such thing as a "free" government benefit. Ask small-business owners who are footing skyrocketing bills for bottomless jobless benefits. While politicians in Washington negotiate a deal to provide welcome temporary payroll, income and estate tax relief to America's workers, struggling employers wonder how long they'll have to pay for the compassion of others — and whether they can survive.

The Beltway deal hinges on extending federal unemployment insurance for another 13 months. This would mark the sixth time that the deadline has been extended since June 2008.

State unemployment benefits last up to 26 weeks. Bipartisan-supported Washington mandates have raised that to 99 weeks. The current proposal would raise the total to 155 weeks. The cost of the joint federal-state program is borne by employers who pay state and federal taxes on a portion of wages paid to each employee in a calendar year. (At the federal level, employers must pay 6.2 percent of the first $7,000 of income to keep the system afloat.)

The combined burden of these hidden state and federal payroll taxes has exploded during the recession as President Obama's economic recovery interventions backfire and the jobless rate remains stuck near double-digits. State unemployment insurance funds have gone broke in nearly half the states. As of April 2010, unemployment tax analyst Douglas Holmes testified before the Senate, 35 states and jurisdictions had unemployment fund-related debts worth $39.5 billion. Anti-fraud efforts to prevent scams and overpayments are woefully underfunded.

In an interminable money shuffle, these bankrupt state unemployment insurance funds are now borrowing money from the feds, whose own regular unemployment benefits account and extended benefits account are both in the red. Washington is relying on transfers from the federal general revenue fund to cover loan obligations related to all these hemorrhaging accounts.

Who pays? Dentists, tavern owners, maid services, mom-and-pop shops — small businesses that are the backbone of the American economy. In my home state of Colorado, small and mid-size firms have been saddled with eye-popping unemployment insurance bills that have doubled, tripled and more in the past year. The businesses that have the lowest claims histories are getting punished the most to make up the jobless benefits fund deficit.

Greg Howard, owner of McCabe's Tavern in Colorado Springs, told the Colorado Springs Gazette his bill spiked a whopping 600 percent. "It's enough to T you off a little bit," Howard told the newspaper. "The dollar amount isn't tremendous, but it's going up six times."

A small commercial painting contractor told me this week that her nine-person company's 1st quarter UI bill has gone from $1,000 to more than $6,500 over the past three years. "It's killing us!" she told me. "How can we hire additional employees? This is a big increase in addition to the health insurance annual increases, etc. We had to reduce our employees' wages by 10 percent this year, and who knows when we will be able to bump them back up?"

Lon Gibson, owner of Legalpool, Inc., told me how perverse unemployment insurance incentives led him to shut down his business in Philadelphia:

"We placed legal staff, especially temporary secretaries and paralegals. Part of our business was to place a secretary at a law firm for a short period of time. ... Invariably, however, the temp would apply for unemployment benefits after the assignment. The agency would make a profit of $6 to $10 an hour from the assignment. Later, the bill would come in from unemployment for the temp and thus eliminate the profit we made from the temp! Ultimately, unless the temp didn't file, the money we made on the temp was completely subtracted by required unemployment payments. It was exactly like, to use a football analogy, making a 10-yard gain and consistently having it eliminated by a holding penalty. ... I can only imagine what other agencies are going through now with this administration."

John S., president of Vinyl Headlights Inc., shared his plight:

"We are a variety rock band that travels up and down the East Coast. Yes, everyone thinks we're lefty rockers, but that could not be further from the truth. We're all businessmen, and we provide a service. Since Obama's term, I have been watching our cost of business going up (UI, fuel, licenses, etc.), and we've had to modify our rates lower to keep us profitable. ... We have let an employee go to further reduce costs. The last resort is to dissolve the company and send every man for himself. More than likely, all employees would take unemployment. If the government just got out of the way, I could employ people and provide the government revenue, but I am better off employing no one to keep from paying UI and the taxes. If a musician can get it, why can't (Obama)? Oh, wait: He's never had to make a payroll, and private enterprise is the enemy."

These unsung Obama jobs death toll stories are amassing across the nation. Alas, the victims of government wealth redistribution never earn as much of Washington's attention as the beneficiaries.

Michelle Malkin is the author of "Culture of Corruption: Obama and his Team of Tax Cheats, Crooks & Cronies" (Regnery 2010). Her e-mail address is malkinblog@gmail.com.