For a small business owner in this weak economy, any tax increase is painful. But an increase of more than 1,000 percent — well, that’s just dangerous.

Yet unless timely action is taken, that is exactly what will happen. The unemployment insurance tax on businesses will go from an average of $90 per employee to $1,070 in April.
State policymakers are worried, and rightly so. That they are at work now, seeking solutions with lawmakers and business owners to head off disaster, is an encouraging sign.
A massive tax increase could force businesses to lay off workers, raising the high unemployment rate even further and increasing the drain on the unemployment benefit fund that the tax supports.
Worse yet, it’s a foregone conclusion that even a 1,000 percent tax increase won’t be enough to keep the fund from running dry, according to the state Department of Labor and Industrial Relations.
With the state’s economy in such a fragile state — and forecasts predicting tough times continuing into 2011 — Hawaii can neither afford to lose jobs nor cut off the jobless.
The state unemployment rate rose to 7.2 percent in October. The fund to help the jobless is expected to dwindle from a high of $552 million in 2007 to $125 million by the end of the month. It’s projected to be $5 million in the red by the end of next year.
There are no painless options. And in fact, it will take a combination of several tools to keep the fund solvent, including: raising the tax burden gradually; borrowing federal money — as 24 other struggling states have done — and paying it back, with interest, preferably when the economy is in better shape; and scaling back jobless benefits, now among the most generous in the country, to extend the life of the fund.
And the heat is on. Businesses will be notified in March about the tax changes, which go into effect in April. That means the Legislature must decide how to proceed soon after it convenes in January.
Whatever options are chosen, the priority must be to protect two increasingly fragile commodities — jobs, and the health of businesses that create them.
Without such support, even the best-run businesses will face serious trouble.
Tommy Silva, owner of T&T Tinting Specialists, estimates the current tax increase would cost his company $40,000 next year.
“That’s somebody’s salary,” he said. Indeed. Silva is proud that his successful, 25-employee company has worked hard to avoid burdening taxpayers. “We’ve had no one go on unemployment on our account for the last 20 years,” he said.
He intends to keep it that way, even after cutting corners to make ends meet in a flat business year.
Now it’s up to the state to balance the need to help businesses preserve jobs with the necessity of maintaining a healthy unemployment fund to weather this economic storm.