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Affordability And Unemployment
The constant battle in a difficult economy is balancing costs against the income earned. Since the US entered and then formally left recession, business has been squeezed from both sides. With unemployment consistently measured as above 9%, trading conditions have been bad. For the last two years, customers decided thrift was good. They began to pay down their debts and so had less money to spend. The so-called credit crunch also directly impacted business. With banks and insurance companies under pressure and some failing, it was harder to get access to credit on an affordable basis. If overdrafts and short-term funding dry up, this forces businesses to run within the limits of their liquidity. In practical terms, this has meant scaling back on inventory and reducing staff levels to the bare minimum.
This stubbornly high level of unemployment is going to impact business in a slightly different way as we work our way through 2011. As the law currently stands, business pays a federal and state tax for each employee. This covers the first 26 weeks of unemployment benefit and the administration of the system. Unfortunately, ...
... the majority of states are running a budget deficit and have long ago exhausted all their funds to pay the benefit. Thirty states borrowed from the federal government. At first, this was interest free but, as from January 2011, the states must pay interest. These states are expected to impose a levy on employers to cover this additional cost. Because of the amount borrowed, experts believe it will take the states at least ten years to pay off the loans. This means your state tax rates could remain high for those ten years.
The good news is that President Obama proposes to force states to postpone business rate hikes for two years. But he also proposes to raise the base level for federal unemployment tax from $7,000 to $15,000. This could be a tax increase at a time when the level of trade remains poor. Curiously, a tax increase to fund unemployment benefit could actually force more small businesses to fire more employees to stay solvent.
Even though the latest figures suggest that consumers may be tiring of a frugal approach to life and are returning to spending, this only improves trade in those cities where wages levels have remained steady. Where employers have moved on to a four-day week or other systems for reducing the wage bill, there is still little money around for anything other than basic necessities. Against this background, you need to look very carefully at the level of business insurance you have. This should go beyond the routine annual walk-through. Now is the time to decide whether every aspect of the cover is necessary and, if so, whether the amount of the coverage matches the extent of the risk. Saving money on business insurance premiums, will help prepare for the inevitable pressure from tax increases. Even if President Obama prevents states from increasing their rates, his own proposal increase federal rates. However you look at it, this is a tough time to be running a business.
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