Business owners to face fiscal cliff tax hike

Amid the uncertainty of the fiscal cliff, employers of Hoosiers will see one substantial tax increase this month.

Indiana, among other states, borrowed money from the federal government to pay unemployment claims, which the state has not yet repaid. Subsequently, Indiana is increasing Federal Unemployment Taxes on business owners.

Indiana employers are subject to an extra 0.9 percent in unemployment tax this year, which more than doubles the rate.

In addition to the basic tax rate, there is an additional charge put on employers, if the state has not funded unemployment to a certain extent. One employer subject to these taxes is Essential Architectural Signs of Indianapolis, which has 17 employees, designs building directories, directional and exterior signs among other types of signs for clients such as St. Vincent’s Hospital of Indianapolis and Ivy Tech Community College.

Cindy Hulen, president of Essential Architecture Signs, said she has been fortunate because she has been able to maintain her business.

“We were just told a week ago we are going to have another big hit, and I’m not sure we are going to do when that happens,” Hulen said.

Hulen said her company paid about $2,900 in FUTA taxes last year.

“This year, instead of paying around $2,900, we are going to pay around $4,000,” she said. “Every little bit of this affects what you are going to do as a business.”

Hulen said she believes the taxation and healthcare law are going to have a big impact on people.

“Last year our health insurance went up 21 percent. We changed the program we were on in order to save everybody,” she said. “The employees pay a smaller portion, but it’s still quite a bit.”

Hulen said increased FUTA taxes are going to affect areas of business such as raises for her employees and that the economy will likely get worse before it gets better.
“I’m certainly not going to run out and hire anybody,” she said. “Hopefully the situation doesn’t get so bad, so we have to lay people off.”

“If people already working for you don’t have much disposable income, they are going to be able to buy less,” she said.

Duane Vaught, a certified public accountant and president of Stampfli Associates of Bloomington, said FUTA taxes primarily effect businesses with high turnover rates.
“There are factors such as what is the actual unemployment experience and actual funding level of the state,” Vaught said.

Vaught said the tax affects primarily businesses with high turnover rates such as restaurants.

Vaught provided a hypothetical explanation, in terms of wages, of the effects of FUTA taxable wages.

“It taxes the first ‘x’ thousand dollars of each person’s wage, if it’s $7,000 then you have five employees who each made $7,000 then it’s all FUTA taxable,” Vaught said. “If you had one high paid employee then there would be only be only $7,000 employee being taxed.”

Harry Shafer, general manager of FARMBloomington, said his employees were affected by the FUTA tax.

“It didn’t really affect the business itself, just the individual associates,” Shafer said. “They got bumped up into the next tax bracket.”

Shafer said the restaurant industry is affected by the FUTA tax because a high number of people are employed in the industry.

“They are people that work pay check to paycheck,” Shafer said. “Every time they lose money to taxes, it makes a big difference to them.

Lee Hamilton, director of the center on Congress at IU, said families and businesses face uncertainty because they don’t know what the tax rates or spending cuts are going to be.

“Families and businesses can’t plan ahead, not knowing what the economic environment will be like,” Hamilton said.

Hulen said no one knows what’s going to happen down the road.

“In years past, we were always slow in December and January, because it was cold, then things would really pick up,” Hulen said. “Because of the change, you don’t know it’s going to pick up.”

Bill Witte, professor emeritus of macroeconomics at IU said increases in taxes could affect small businesses in a variety of ways.

“If taxes on the business rise, there could be fewer funds available to reinvest in the business,” Witte said in an email. “If tax increases hit customers, they could have less to spend, affecting business revenues.”

Witte said the fiscal cliff has increased uncertainty for many businesses.

“This makes businesses reluctant to invest in new capacity,” Witte said. “It also makes customers less willing to spend.”

Hulen said the biggest problem regarding the fiscal cliff and FUTA taxes is
uncertainty.

“There’s so many things hanging out there,” she said. “You’re afraid to make a bold move, because you don’t know what’s going to happen next.”