Rob Port at Say Anything noticed this story yesterday, which may explain to Barack Obama why his Porkulus bill hasn’t generated new jobs … well, one of the reasons, at least. The Associated Press reports that the increases in unemployment benefits have placed new burdens on businesses in the form of higher unemployment taxes — in Florida, a twelve-fold increase for next year. The result? Capital that may have gone towards hiring new employees will get sucked up by government instead:
As if small businesses needed another reason not to hire, consider their latest financial burden: The cost of rising unemployment itself.
Employers already are squeezed by tight credit, rising health care costs, wary consumers and a higher minimum wage. Now, the surging jobless rate is imposing another cost. It’s forcing higher state taxes on companies to pay for unemployment insurance claims.
Some employers say the extra costs make them less likely to hire. That could be a worrisome sign for the economic recovery, because small businesses create about 60 percent of new jobs. Other employers say they’ll cut or freeze pay.
Why are these costs going up now? Federal intervention, and especially federal law:
Federal law requires states to build up unemployment insurance trust funds in good times so they can pay benefits during downturns. The idea is to avoid having to raise taxes or cut benefits in a recession.
But the severity of this recession has bankrupted many states’ trust funds and forced them to borrow from the federal government. States eventually must pay back the loans. Otherwise, the federal government can raise taxes on their businesses.
The problem here isn’t so much the disincentive conservatives claim unemployment benefits provide, which “funemployment” stories tend to propagate. Anyone who has spent any time on unemployment benefits understands that they do nothing to encourage people not to work; they are not even subsistence wages. The problem is that extending unemployment benefits takes capital out of the hands of people who create jobs, and puts that capital in the least-efficient hands possible: the government.
The result? Exactly what we see here. The government not only has sucked capital out of the private sector to fund unemployment benefits, the Democrats have sent signals of massive tax increases in the near future in order to pay for Porkulus and the statist Democratic agenda. Their effort to rapidly escalate energy costs through cap-and-trade legislation also has investors and businessmen keeping their wallets locked. They need to save their money rather than invest it in order to prepare for the massively increased costs of doing business.
The only way to solve that would be to dramatically scale back these government interventions and keep capital in the private sector. Unfortunately, we have exactly the wrong people in charge to get that kind of policy out of Washington, and so we will continue to see a vicious cycle of spending and job losses for at least the next several months.