Citizen-Led Bill Will Cut Employers’ Taxes … By a Lot

June 3, 2014

Investigative Reports

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Unemployment Benefits

$4,000 A YEAR FOR ONE SMALL BUSINESS

The most significant tax cut passed by the legislature this year – indeed, the most significant tax cut even talked about this year – didn’t grab any headlines and sailed quietly through the legislature in less than three months. It was the work of Aiken resident and business owner Deedee Vaughters. She says it will save her business around $4,000 per year.

“The bill was completely citizen-driven,” says Vaughters. “This wasn’t something politicians dreamed up and asked activists to push.”

The legislation – soon to be signed by Gov. Nikki Haley – allows business owners not to pay unemployment insurance on themselves.

Unemployment insurance works like this: Once a quarter, businesses are required by federal law to pay into an insurance fund; the amount varies according the number of employees you have and the number of claims successfully filed against you, but every employer has to pay into the fund. If you lay off an employee and that person qualifies, he or she draws from that “insurance” money.

“But here’s the weird part,” Vaughters says. “You have to pay unemployment insurance on yourself as an employee of the company, even though there’s no way you could collect on it. If I go out of business, that’s my fault, so I don’t get to collect benefits. If I decide to retire or do something else and close the business, again that’s my choice. No benefits. So why do Bauer and I have to pay for ourselves? What are we going to do – lay ourselves off?”

Deedee and her husband – Bauer, a physician – run a medical practice in Aiken. Both have also been active proponents of free-market policies. Deedee recently formed the South Carolina Business Owners Association; in 2012 she ran unsuccessfully against longtime Senator Nikki Setzler. (Deedee also sat on the board of the S.C. Policy Council, The Nerve’s parent organization, until deciding to run for office.)

Around a year ago, she began taking her idea for legislation to a variety of state legislators of both parties. Some told her it couldn’t be done on the grounds that it was a “federal issue.”

“Most of them didn’t even know business owners have to pay unemployment insurance on themselves as owners,” she says. “That’s understandable. If you outsource your bookkeeping, you don’t even see it happen. But we do payroll in-house, and I knew we were paying around $4,000 every year to ‘insure’ ourselves with money we couldn’t collect.”

She argues that that was illegal. “It’s against the law for the government to force you to buy insurance for something you, basically by definition, can’t collect on.”

Vaughters insists that this isn’t a tax favor. “This isn’t business owners taking advantage of a tax special break carved out just for us,” she argues. “Only the employer pays into the UI [unemployment insurance] fund. Other taxpayers don’t contribute. If this were just another favor for business owners, I’d be against it – but it’s not that at all. It doesn’t add to everybody else’s tax burden.”

She gives Sen Kevin Bryant the credit for understanding the need for S.1100, and getting it through the Senate Labor, Commerce, and Industry committee in less than a month. There it gained three co-sponsors, including Sen. Vincent Sheheen, Sen Tom Young and –ironically, Sen. Nikki Setzler.

Along the way, Vaughters discovered that six other states allow employers to withhold payments for their own unemployment insurance.

Vaughters is rightfully proud of the bill. “What I like about it is that it’s a broad-based thing. It doesn’t apply to just some businesses – it applies to everybody who’s an employer,” she says. “This is far better than a corporate tax credit. A tax credit is money that won’t be collected from one taxpayer, but it’ll have to be collected from everybody else, since government won’t shrink to account for the loss of revenue. With this bill, the money won’t be collected and it won’t be spent. So it’s money put right back into the private sector.”

How much money is hard to calculate. Vaughters estimates that, over the course of her business’s life she and her husband have paid around $35,000 to “insure” themselves.

The new law will automatically exempt owners – not stock owners but corporate officers – from paying into the fund for themselves, unless they voluntarily opt in. That could add up to quite a windfall for South Carolina’s private economy.