The Massachusetts economy’s slow, shaky reemergence from the depths of the COVID-19 pandemic is threatened by more than a feared second wave of the virus.
The state’s stubbornly high unemployment rate makes it clear that workers are still hurting. Now, a deepening shortfall in the state’s Unemployment Trust Fund means some of that pain may be passed on to business owners in the form of sharply higher taxes. Congress must act to make sure that does not happen.
The trust fund will be more than $2.4 billion in the red by the end of the year, and the state, fearing a $5 billion deficit by the end of 2021, has scheduled a whopping 60% increase in payroll taxes for 2021. For an average employer, that would mean the per-employee contribution would jump from $539 this year to $858 in 2021, according to the Labor Department.
That extra $319 expense per employee would likely prove devastating to small businesses trying to restart after an extended lockdown.
“It’s like throwing an anchor to a drowning person,” said Greg Sullivan, a senior analyst at the Pioneer Institute, a Boston-based think tank. “These businesses are just starting to recover, and they’re getting hit with a big bill.”
There are no bad guys here. The state’s highest-in-the-nation unemployment rate still hovers around 16%, and state assistance is the only thing keeping food on the table for many working families. And it’s unfair to expect small-business owners to absorb a 60% tax increase while expecting them to reboot the economy.
The state has borrowed some money to fill the gap, but it’s clear that can’t continue forever, which means Congress must step in. It’s an appropriate role for federal lawmakers, as the unemployment fund crisis is not unique to Massachusetts. Arizona says its fund could run out of money by the fall, and Connecticut and Louisiana , which have already turned to borrowing, are also considering tax hikes. Since the start of the pandemic, New Hampshire’s trust fund has dropped from $300 million to less than $160 million.
To be sure, some states’ funds were in better shape than others before the pandemic hit. But none can weather another six months to a year of chronic unemployment. It is clear relief for the states must be a key element of the next COVID-19 relief package.
“We would love to freeze (the rate hike) rather than allowing it to go up during a recovery because so many businesses are in trouble,” said state Sen. Patricia Jehlen, co-chair of the Labor and Workforce Development Committee. “But we really need help from the feds to make that possible.”