Businesses Likely to See Tax Hike

The proposed increase, slated to begin Jan. 1, 2003, would increase the current rate -- 1.2 percent for the first $15,000 earned by an employer -- by 50 percent.

This tax increase is part of a state statute that mandates an increase in the employer tax whenever the N.C. Unemployment Insurance Trust Fund drops below $800 million by Aug. 1 of each year. The trust fund provides unemployment payments to residents.

The N.C. Unemployment Trust fund received $237 million from the federal government as part of the recently passed economic stimulus package.

But the trust fund remains $306 million short of the required level.

Laurie Green, a spokeswoman for the Employment Security Commission of North Carolina, said the fund likely would remain short of the required mark.

"It looks like it will be under," Green said.

She said the Unemployment Insurance Trust Fund has held more than $1 billion for several years, making this year's shortfall the greatest in 15 years.

Green said the likely increase would not be as harmful as some might think.

She said the current tax rate is actually 50 percent lower than the normal level to reward businesses for contributing so much revenue for the fund in the past.

"It will be raised to its regular level" Green said.

Even though the rates will return to their original levels, increased taxes could be disastrous for the state's already struggling economy.

The "old economy" jobs, such as the textile, furniture and manufacturing industries, have been hit especially hard by the recession.

"Manufacturing jobs are disappearing because of expensive labor," said Steve Tuttle, a spokesman for the N.C. Citizens for Business and Industry, a nonprofit organization based in Raleigh that lobbies for businesses.

Although higher operating costs from taxes could discourage new businesses from coming to North Carolina, Tuttle said the increase in the employer tax is not expected to be a major deterrent.

"The current recession is nationwide," he said. "Every state is in the same boat."

Patrick Conway, an economics professor at UNC, said North Carolina offers other advantages that lure businesses, weakening the negative impact of any tax increase.

"They look at quality of life, close suppliers, communication structures and the universities," Conway said.

Conway also stressed the importance of the state government's response to economic recessions. "Businesses look at the tax and how well the government handles its situation," he said.

Tuttle said he believes that the economy will have recovered and will thus be able to manage with increased tax rates.

At the very least, N.C. businesses have until 2003 to plan for the additional expenditures, Tuttle said. "The actual impact will be no sooner than January 1."

The State & National Editor can be reached at stntdesk@unc.edu.