Would cutting state unemployment-insurance kick-start hiring?

During the worst of the Great Recession, after laying off four of 13 employees, Judy Coovert saw her Burien company's annual tax rate for unemployment insurance jump more than 230 percent.

Sales at the office-products distributor, Printcom, have started picking up — but not enough. On Monday, the company let go an additional employee and cut another full-time worker's hours in half, changes that will save the firm money in wages, health-care premiums and state taxes.

"We've got to save the company," said Coovert, who owns the 25-year-old company with her husband, Jim. "I went upside down and sideways, and the bottom line is we have to reduce expenses to break even."

Gov. Chris Gregoire is proposing cuts in unemployment-insurance taxes that she says will help companies, especially small businesses, put people back to work and lower unemployment, which has been stuck around 9 percent for more than a year.

Gregoire wants the Legislature to act before Feb. 8 to stop a scheduled average 36 percent rate hike.

Her proposal would reduce projected unemployment taxes by nearly 18 percent this year, an additional 8 percent in 2012 and nearly 5 percent in 2013, officials say. The state can afford to do this because it has one of the nation's richest unemployment-insurance trust funds.

"We're going to be your partner in your success," Gregoire said. "When you do well, we do well."

George Allen, senior vice president of government relations for the Greater Seattle Chamber of Commerce, said Gregoire is raising the right questions.

"She's started a statewide dialogue to get to real solutions," he said.

Some policy experts say there's no strong evidence that such tax-cut proposals will translate into hiring.

"I'm skeptical," said Mike Leachman, assistant director of the State Fiscal Policy Project at the nonprofit Center on Budget and Policy Priorities, a Washington, D.C., liberal think tank.

"I think that businesses will hire when they see demand for their product.... Cutting taxes in this way for employers doesn't necessarily improve those business basics."

Tax linked to layoffs

Under the state's unemployment-insurance formula, companies pay higher taxes if anytime in the previous four years they laid off employees who then received unemployment benefits.

And all employers, regardless of whether they let go workers, pay a "social cost" tax to cover the workers of businesses that have closed.

The depth and breadth of the Great Recession have meant all employers are being hammered by increases in the social-cost tax.

Printcom, for example, has seen its rise 316 percent over the past two years to just over 2 percent of payroll.

Gregoire's proposal would reduce the social-cost tax rates for the majority of employers. Those that didn't lay off employees in the past four years could see their tax bills for unemployment insurance cut by nearly two-thirds, officials say.

Some businesses that haven't had layoffs say the tax rates aren't a big concern for them.

The Gentle Giant Moving Co., a Massachusetts-based mover operating in 13 states, launched in Washington in 2008.

The company employs 10 people full time here and avoided layoffs over the past year by cutting back to a four-day workweek, said Ronald Zahn, its chief financial officer.

Businesses that have had layoffs, like Printcom, still welcome Gregoire's proposal.

"It's a start"

"It's a start," said Coovert, who sits on the executive board of the Association of Washington Business. "It's going to save me about $370 in the first quarter, which is nothing."

That's because three of the four employees Printcom laid off in 2008 and 2009 were still collecting unemployment benefits last year, pushing the company into more expensive insurance "rate classes" where Gregoire's changes would make the least difference.

Nevertheless, Coovert testified before a state Senate committee last week in favor of the proposals.

"Even though it's not going to help us, it's going to help those folks down in rates 1 and 2 and stabilize the employment picture," Coovert said later.

About 96 percent of businesses in the lowest rate class — more than 72,000 employers — have less than 10 employees, according to Employment Security.

Responding to Gregoire's proposal, labor leaders are pressing lawmakers to add a new unemployment benefit — $15 per week per child. A House committee Friday agreed, moving a substitute bill forward.

When businesses are asked to pay higher taxes during a recession, few have the power to pass those higher costs on to their budget-conscious customers, Coovert said.

Instead, businesses have to absorb those costs, and in many cases it's personal.

Coovert said she and her husband tapped more than $180,000 from their retirement savings in 2008 and 2009 to keep Printcom's doors open.

Last year, after the added expense of replacing its 15-year-old phone system, the firm just broke even, she said.

"We certainly can't hire anybody, and there's a lot of folks in that situation."

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com