Michigan has led the nation in unemployment for 19 months. Experts fear this will put even more strain on Michigan businesses, slowing hiring even more.
As of February 2010, Michigan owed the federal government $3.5 billion it has borrowed to help pay unemployment benefits, according to the state.
Michigan paid $7.1 billion in benefits to the 680,000 unemployed Michigan residents in 2009 and had to borrow $2.4 billion to cover that year's expense. That state's unemployment rate was 14.6 percent in December 2009, the highest in the nation. Nevada was second at 13.0 percent.
In Michigan, businesses carry the entire burden of paying unemployment benefits for the first 26 weeks and then share the cost with the state for the first 13-week extension. The federal government pays for its extensions as part of the stimulus package.
Businesses will be taxed more to pay back the billions they owe the federal government.
"Unemployment insurance taxes are payroll taxes. As such, they are disincentives to hire workers and they diminish the take-home wages of existing employees when they are increased," said Charlie Owens, state director of the National Federation of Independent Businesses. "It is a certainty that these taxes will increase to cover Michigan's debt to the federal government and this will exacerbate our high unemployment, creating a vicious cycle of decline."
The state has paid out more in benefits than it has collected in taxes to pay those benefits since 2001, said Norm Isotalo, spokesman for the Michigan Department of Energy, Labor and Economic Growth. The state expects it will have to borrow another $1 billion through 2010.
Fred Radtke, president of F.A.R. management, an unemployment consulting business in Clinton Township, said the federal bill will linger for years.
"I would be shocked, absolutely shocked if we could pay this off in five years," Radtke said. "I've been doing this 32 years. This is as bad as I've ever seen it."
Radtke said in some instances, businesses could see their unemployment payments per employee rise from $56 to $140 in three years.
"It's a big problem," Radtke said.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.