In response to the pandemic, Governor Gavin Newsom has taken a bold step to mitigate the spread of the coronavirus and save lives by ordering the shutdown of large sectors of the California economy. Millions of Californians suddenly hit the unemployment lines, and the state’s unemployment insurance fund began handing out unprecedented amounts of benefits.
In addition to the legitimate claims of unemployed Californians, there has been a large-scale fraud that has been successful due to mismanagement within the Department of Employment Development. It is estimated that 10% of payments were confirmed as fraudulent and 17% as potentially fraudulent – $ 11.4 billion in confirmed fraud, with the potential of around 20 billion more.
Unless the state steps in to help California businesses, employers will have to reimburse costs caused by the pandemic and the department’s errors.
According to the latest report from the ministry’s unemployment insurance fund, the fund had a surplus of $ 3.28 billion before going into deficit as of June 3, 2020. In total, California paid $ 26.8 billion. dollars in claims in 2020.
California was one of 18 states that needed a federal loan to keep paying benefits because the huge overnight increase in jobless claims wiped out state funds. The Legislative Analyst’s Office noted that the amount California borrowed per worker ($ 1,070) “is higher than in other states due to a combination of state unemployment insurance benefits. relatively generous and higher than the state average unemployment rate throughout the pandemic ”.
To date, California has borrowed $ 21.8 billion from the federal government. If California doesn’t pay off those loans in full by September 6, interest will start to add up to over 2.27%.
The Department of Employment Development predicts that the unemployment insurance fund will have a deficit of $ 26.7 billion by the end of 2022. Employers have paid the maximum payroll tax (for the largest employers in the state is 6.2% on the first $ 7,000 of each employee’s salary, a taxable salary base set by law).
Since California has ended 2020 and is expected to end 2021, with a deficit in the unemployment insurance fund, the federal government will begin to reduce the Federal Unemployment Tax Act credit, which will result in higher income taxes. employers. The federal tax credit is 5.4%. For each year that California maintains a fund deficit, the federal government reduces the credit by 0.3% until all loans and interest have been repaid. The credit reduction will take place from tax year 2022, with higher taxes due in 2023.
For every 0.3% reduction in credit, California employers pay an additional $ 21 per employee each year. Companies will pay $ 77 more per employee in 2023 and $ 98 more per employee in 2024.
If employers are held responsible for repaying the entire federal loan, California businesses will pay $ 34.2 billion in higher taxes and not fully repay loans until tax year 2032, when they are due. would pay $ 266 per employee in higher taxes. These numbers assume no further economic shutdowns or recessions, and no change in the state’s civilian workforce of 19.3 million.
The governor’s plan to reduce the principal by $ 1.1 billion would reduce the tax liability to $ 29 billion and result in a one-year tax savings.
As California continues to reopen, the legislature and governor are expected to enact policies that promote job growth and, just as important, job retention in a rapidly changing labor market. As the pandemic has highlighted, the increase in remote working could cause California businesses to move employees out of state.
With a record budget surplus of about $ 80 billion and about $ 27 billion in additional federal stimulus, the legislature and administration should commit to paying down unemployment insurance debt in order to avoid d ‘significant tax increases for employers and to ensure that businesses stay in the Golden State.
Our national employers and working families deserve no less.
Robert Gutierrez is president of the California Taxpayers Association, [email protected] He wrote this review for CalMatters.