NOW, Mao MOM
Economics Lesson for a Socialist State
Posted: 11/17/2009 02:47 PM
Adam Avery
Maryland businesses received correspondence dated October 23, 2009 from the Division of Unemployment Insurance. The letter attempts to outline the reasons why the Maryland unemployment insurance trust fund is dwindling, what the state is going to do to refill the coffer, and what the Governor is doing on behalf of his constituency.
To no one's surprise, the letter reads like a propaganda leaflet for Mao O'Malley and his Socialist Party.
"While Maryland's trust fund has been able to weather the economic storm better than the funds in many states...its balance fell to $301.7 million, down from $895 million a year earlier. The reason for the decrease is straightforward: we have seen unprecedented demand on the Trust Fund."
Not so, Mao. The reason for the decrease is the loss of jobs. Unprecedented demand on the trust fund is merely symptomatic of an unemployment rate that has increased nearly 40% from Q3 2008 to Q3 2009 (Bureau of Labor Statistics). And the loss of jobs is merely symptomatic of the continued over-taxation and burdensome regulation of Maryland businesses.
The diminished fund will cost Maryland businesses an additional tax of anywhere between $136 and $382.50 per employee for a total unemployment insurance fund tax of somewhere between $187 to $1147.50 per employee for calendar year 2010.
Since no one in state government understands market-based economics, allow me to explain on their behalf. When the government raises taxes and the cost of doing business in general, businesses respond in one of two ways. They either raise the cost of their goods and services and "pass" them on to the consumer or they layoff employees in order to reduce the cost of operations equal to the increases imposed by government tax and regulation. .
The former plays out as an additional tax on the consumer. The latter reduces the number of gainfully employed, thus further exacerbating the shortfall in government funds.
"Governor O'Malley is working with the business community, the Maryland General Assembly, and other key stakeholders on Unemployment Insurance modernization legislation that, if enacted, will allow Maryland to access $126 million in federal funds that will be directly deposited into the Maryland Unemployment Trust Fund.....Additionally, the Governor will be working with key stakeholders on legislation temporarily lowering the interest rate on late payment of quarterly insurance obligations. This is an acknowledgment that in these difficult times employers may experience cash flow problems that would result in late payment."
As part of the business community, I have not had the privilege of working with MOM on a plan to increase the unemployment insurance fund. If I were to, I would suggest a simple bi-partisan strategy: foster an environment that puts the good people of Maryland back to work.
The Tax Foundation's State Business Tax Climate Index (S.C.R.E.W.E.D. for short) compares states in five areas of taxation that impact business: corporate, individual, sales, (the aforementioned) unemployment insurance, and property. Maryland ranks 45th. Maryland's state/local tax burden is ranked fourth highest in the nation, behind only New Jersey, New York, and Connecticut (taxfoundation.org).
The upside of being the 45th best out of 57 states and the fourth highest tax burdened state is the cavernous room for improvement.
Mr. O'Malley, there is plenty of incentive to cut taxes TODAY. Not tomorrow, not after the next election, not at the end of your band's second set. NOW.
Reducing taxes on business has the following effect: businesses either invest the increased profit in more production (i.e. hire employees, expand infrastructure) and/or businesses reduce the costs of their goods and services equal to the reduction in tax and general operating costs.
The former increases the size of the tax pie by having more employed contributing. The latter reduces the costs (tax) to consumers. In turn, the consumer invests their savings in other goods and services, personal savings, debt reduction, and charitable giving. This consumer activity generates the need for more employees, which generates more taxpayers.
If Governor O'Malley is serious about correcting the flaws with the unemployment insurance fund, he would be wise to concentrate on the "unemployment" and not so much on the "fund"(ing).
Increasing taxes to increase the fund doesn't reduce unemployment or increase the fund. Reducing taxes to increase employment does both....
NOW, Mao, MO'M
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