When Taxachusetts offers a more desirable tax environment than your state, that’s when you know you’re in trouble. As incredible as it might seem, that is what at least one business found, according to today’s Providence Journal, which references our very own Roland Benjamin, a board member of the Hummel Report. Benjamin owns LFI, Inc., a manufacturing company in Smithfield, but he found the tax situation in Rhode Island so burdensome that when he opened up a satellite site he put it in Massachusetts.
At issue is the unemployment tax the state levies on businesses to fund its unemployment benefits. Because unemployment in this state is so high, the fund for the benefits has dried up. Rhode Island has borrowed the difference from the federal government, but it might soon turn to higher taxes as the solution, resulting in potentially as much as $36 million more in unemployment taxes. And this after the tax rate has already gone up 36 percent. The article states the obvious in noting that this all might be bad for business, but one specific unintended consequence was overlooked by the reporter. If businesses are paying more for unemployment benefits, that further limits the money they have to hire new employees, thereby driving up employment that much higher, creating a vicious cycle.