Unemployment tax on businesses to increase in 2013

With even the Las Vegas Chamber of Commerce conceding that unemployment insurance rates must go up, the Employment Security Council reluctantly voted Tuesday to raise the average rate for employers - but only by a quarter percent.

That increase will raise what the average business pays on behalf of each worker by $67.25 a year to $605.25. On top of that, however, there will be a $21 annual increase in the federal unemployment tax to $105. That makes the total increase $88.25 a year.

The new overall rate for the coming year will be 2.25 percent, but the actual amount each business pays per employee depends completely on each individual business's claims experience. Those with a large amount of turnover can pay up to 5.4 percent. Those with the best employment records and lowest turnover pay as little as a quarter of a percent.

Because the claims experience for Nevada businesses is divided into 18 separate levels, the council implements the tax increase by shifting the formula that determines what rate businesses fall into.

Employment Security Division Administrator Renee Olson told the council that while the current tax rate is raising enough revenue to break even with claim payments, it isn't enough to pay down the state's unemployment insurance loans before the state may see another recession. Nevada started the recession with some $700 million in the bank, but spent it all and has since had to borrow hundreds of millions of dollars from the federal government to pay unemployment benefits during the past three years.

Employment Security Division economist David Schmidt said that debt is at about $680 million as of this past week. In addition to paying that amount back, the state must pay the federal government interest on it. He said it's in the state's best interest to generate enough tax revenue to pay it down quickly. The state's interest cost for 2012 is $23.9 million.

He and Olson told the council if the state doesn't make progress paying that debt, the federal government just increases its unemployment tax to get the money.

Council member Katie Johnson said she looks at that debt like a credit card bill, saying "If you only pay the interest, you never get it paid off.

"And personally, I'd rather have the state be in control than the federal government," she said.

The new tax rate will generate an estimated $446.96 million from existing businesses and another $52.7 million from new employers for a total of $499.65 million next year. That is an increase of $56.7 million.