Taxing Work

This January, a hidden tax increase will penalize almost every employee and employer in Oregon. Due to the recent high unemployment rate, State payroll taxes, which fund the unemployment insurance system, will increase from an average of 1.97% of base wages to 2.76%. In other words, assuming you make at least $32,100* (before taxes), your employer will have to pay an additional $269, for a total of $886 next year. Over time, higher payroll taxes may make Oregon’s economy worse.

While employers technically pay the unemployment insurance tax, economists generally agree that workers ultimately pay it through reduced wages. However, wages do not easily shrink. If employers cannot absorb the cost of the tax increase through smaller employee paychecks or eliminating pay increases, they will have to find another way, like laying off workers.
For a company paying the average payroll tax rate, it would cost more than $32,000 to pay for 120 employees making at least $31,000 per year. When you add the other hidden costs of employees, businesses large and small may find the only way to make ends meet is to lay off workers. When lower wages mean workers have less disposable income to spend, and many workers lose their jobs altogether, it is evident how this hidden tax increase is bound to jeopardize Oregon’s economic recovery.

*This figure was corrected by the author 12-7-09.


Christina Martin is Director of the Asset Ownership Project at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Posted by at 06:00 | Posted in Measure 37 | 23 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    The uncertainty in Oregon’s tax rates probably also detracts from businesses weighing expansion in Oregon versus other locations. Other secondary effects would include: greater use of temporary employees who then have to cope with less income certainty, and using day labor and other non-reported labor helping foster the underground economy.

  • eagle eye

    Is Christina Martin then advocating the elimination of unemployment insurance?

    • Max

      Yes. Of course.
      End it now.

      • eagle eye

        But Max, I was asking about what Christina Martin is actually advocating. Are you speaking for Christina Martin?

        • Diamond Jim Franconni

          Ending the insurance.
          What else could I have meant.
          Now I see why people avoid this blog.

  • Anonymous

    What is it going to take to convince the idiots that ALL, EACH, EVERY SINGLE FREAKING ONE of the taxes are ultimately paid by regular folks either through companies passing on the cost to consumers or employers passing on the cost to employees?

  • Robert Collins

    This is a very misleading post. Each year a business is assessed a new unemployment compensation rate based on their experience rate, which is based on their claims history. We just received our new rate for 2010. It was REDUCED from 2.3% in 2009 to 1.8% for 2010.

    Christina, how did you compute your “averages”.

    • Jay Bozievich

      Robert, The rate my wife and I pay for our company just went up to 3.10% because we are a relatively new employer, even though we have never fired, laid-off or terminated an employee. Yes, rates are set based on experience, but they also take into account overall cost of the system. In your case, your rate may have dropped even lower if it was not for the overall system’s experience over the last year.

      • eagle eye

        I’m not sure what you’re getting at. Do you think rates should not vary with the unemployment rate? Or are you advocating that there not be unemployment insurance? Or that as a recent business owner you should not have to pay higher rates?

    • Christina Martin

      Robert,

      Thank you for your interest in my article. The average payroll tax rate will increase in 2010. Please check the Oregon Employment Department’s website, which has a more detailed summary of the increase: https://www.employment.oregon.gov/EMPLOY/TAX/2010_Tax_Rates.shtml .

      It is true that the unemployment insurance tax varies depending on the employer’s history (i.e., according to its experience rating). For example, average rates are generally higher for employers who lay off a higher proportion of workers. New businesses have their own rate. I wrote about average rates because what happens to a particular business is less revealing than what will happen to the aggregate.

      The purpose of this article was not to advocate a particular system, but to show the consequences of even minor tax increases. However, as far as unemployment insurance is concerned, there are numerous reforms that could improve the program for workers and for the economy. For example, Chile uses a form of unemployment insurance savings accounts that offer both fair protection for workers and economic benefits. For more information, you can read https://www.cascadepolicy.org/unemployment-insurance/ . Though please note that at this time, the diagram used on that page is more of an example than a specific recommendation about how the program would work in Oregon.

      Thank you,
      Christina Martin

      • Robert Collins

        Christina,
        Thank you for the additional information. Having owned and operated a small business for 25 years no one is more sensitive than I to taxes. I just don’t think the unemployment insurance system is a particularly attractive target. I will admit that I grit my teeth when I fill out the first quarter payroll report of the year (most of our employees exceed the cap in the second or third quarter) and I am not particularly happy to write that check, but at least that money is being used for a worthwhile purpose. The Tri-Met component on the other hand…….

      • eagle eye

        I really think if you are proposing — to cut the unemployment insurance tax? or what? — you really ought to spell it out. Otherwise people like Max can get the wrong idea. People like myself are left wondering just what you really have in mind. Yes, tax increases are unpleasant, as are a good many things. Then what?

        A program like the one in Chile might or might not be better than what we have now. Who knows? Anyhow, if that’s what you want, why not say so and spell out a bit of the details?

        As it is, one would get the idea that you just don’t like unemployment insurance, and most people would then click to another channel.

        • John Fairplay

          It is possible to provide information without recommending specific policy changes. If only our public schools would take that track!

          • eagle eye

            Possible, but at a political website, not exactly fruitful, in my opinion. Rather, it’s disingenuous and coy.

          • Rupert in Springfield

            Wait a second. So unless someone has a specific proposal to rectify a situation you see it as not fruitful to inform people that a tax is going up and how it might affect them?

            I’m not really sure why one follows the other.

            Would you apply this reasoning to things other than political websites?

            How about newspapers? Should they inform people without proposing solutions? For example, should newspapers report the unemployment figures unless they have specific proposals for increasing employment?

            Frankly I think people being informed of what their government is doing and what taxes are going up is very fruitful. Most people are not employers so therefore most are unaware these taxes are going up or how it may effect them. Some employers out there might not know, and maybe they learned here.

            If you think people being informed of that is not very fruitful, then fine, ignorance is bliss. For myself I prefer an informed citizenry and whatever contribution this blog makes to it in that regard, no matter how big or small, has some value.

          • eagle eye

            Yes, Rupert, yes, Rupert.

          • Rupert in Springfield

            Thanks for the clarification.

  • Robert Collins

    Jay,
    No argument. During times of high unemployment most companies experience history includes more laid off workers and they pay a higher rate. My point is that this is nothing new and that not everyone’s rates went up. When we kick out the dems in 2010 and employment increases all our rates will begin to go down. The unemployment insurance system has to be funded and an experience based payroll tax rate is the fair way to fund it. I am sure there is plenty of fat in the state bureaucracy that runs the employment division and that goes for all state agencies. But this post presents itself as though this is something new and it’s not. We’ve been in business 25 years. The rates go up and down.

  • Rupert in Springfield

    The problem here is that unemployment insurance is by design a scam cloaked in a veneer of being run as an insurance pool.

    Part one of the scam is the employer is forced to buy it from a single source. I’m not sure this is true of any other form of insurance. There is absolutely no reason for this other than it allows a nice pot of money for the government to skim from and add more government workers. Many large employers self insure for health insurance. Can they do so for unemployment insurance? I could be wrong but I sure don’t think so. The exposure is much greater on health insurance, but yet unemployment insurance is something employers cannot self insure for? Doesn’t make a lot of sense.

    Part two is employers, supposedly the people buying the insurance, have no control over what it is they are buying. If benefits are enhanced, by extension of the time benefits are paid as, employers have no right to keep coverage at current levels and not partake of the enhanced benefits. When they are raised to gold plated levels of insurance, say extending benefits to a year or more, employers have no right to opt out and go with the original plan. They simply have to pay higher premiums. This is similar to the problems in health care coverage, where government mandates enhanced benefits and rates rise. When people have no choice and the gold plated model is mandated, expect the price to go up accordingly.

    No other insurance works like this and this is the reason for increasing taxes/rates.

    Gee, wonder if the same will happen with whatever “public option” we get with BO care? We know government loves to mandate gold plated health care and we have seen rates rise accordingly. This is the same thing with unemployment insurance. Gold plated coverage is mandated, through extending benefits, and rates rise. Science!

    Would it be so hard to allow workers to choose their coverage? How about allowing them to pick, three month, six month and one year plans? We could even mandate employees have to pick a minimum three month plan to satisfy the totalitarians.

    Government loves to try and pretend it is running things of this nature as a business. Invariably we find that over time government releases itself from the normal encumbrances of running a business and foists the increased costs of their decision on an unknowing and beholden populace. This is why over time virtually all government programs, such as this one, wind up costing way more than initially predicted.

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