Gov. Jim Gibbons on Thursday recommended a state panel reduce taxes employers pay to Nevada's unemployment insurance trust account, despite having to borrow about $100 million a month from the federal government to pay benefits.
"The best way to keep jobs and encourage businesses to add new workers is make it easier for them," the first-term Republican governor, a staunch opponent of new taxes, said in a written statement. "Raising the unemployment tax rate may push some businesses struggling through the recession over the edge."
By temporarily lowering the unemployment insurance tax, Gibbons said "Nevada will retain existing jobs and encourage new businesses to relocate to Nevada, creating new jobs and further diversifying our economy."
Elliott Parker, an economist at the University of Nevada, Reno, disagreed, saying any effect would be minimal.
"Basically, we'd lose a quarter of the revenues coming in at a time when the unemployment fund is broke," Parker said, adding the net effect of the governor's proposal "would be negligible on employment."
"It will make a huge difference to the unemployment fund. It will not make a significant difference to the cost of labor," he said.
Gibbons is proposing temporarily reducing the average employer assessment on the first $26,000 in wages to 1 percent from 1.3 percent. Gibbons said the move would save businesses about $70 million next year.
The state Employment Security Advisory Council meets Tuesday to consider rates for 2010.
Nevada's unemployment rate in August soared to a record 13.2 percent, the second highest in the nation. The state already has applied to the federal government to borrow up to $264 million for the rest of this year, and officials have said up to
$1 billion may be needed next year to meet jobless benefit claims if Nevada's economy doesn't make a dramatic turnaround.
Nearly half of all states are borrowing from the federal government to pay unemployment benefits.
The federal stimulus bill provides states with interest-free loans for unemployment claims through 2010. After that, the law provides for an interest rate of 4.6 percent on any outstanding loan balances.
Last month, Gibbons sent a letter to members of Nevada's congressional delegation, urging them to support legislation eliminating interest charges after the interest-free grace period expires.