California state senators are urging Congress to step in and help the state avoid a looming $20 billion debt, while Governor Gavin Newsom and some Democratic lawmakers continue to resist financial assistance.
Senate Minority Leader Brian Jones has introduced a joint resolution where he and other Republican senators are requesting Congress to delay an upcoming federal payroll tax increase linked to the state’s outstanding unemployment insurance (UI) debt.
Employers in California face a 5.2% payroll tax, which is significantly higher—about nine times—the rate charged to businesses in other states that do not have such debts, according to the California Business Roundtable.
It’s particularly tough on small businesses, which form 99.8% of all enterprises in California and employ approximately 7.6 million people, as pointed out by Jones’ office.
“Every other state has cleared its debt, yet California remains in a bind,” Jones remarked, asserting that businesses are unjustly shouldering the financial burden due to California’s and Newsom’s lack of action on repayment.
“Those that managed to stay afloat during the pandemic, kept their employees, and supported their communities will now pay for Gavin Newsom’s oversight,” he added.
While other states utilized federal aid to address their unemployment debts, California allocated those funds for infrastructure and homelessness programs instead.
Jones’ resolution proposes that Congress should suspend federal payroll tax hikes for businesses if the state’s decisions—like shutdowns due to COVID-19 or failure to curb unemployment fraud—contributed to the debt.
This year, businesses are expected to pay an extra $42 per employee in federal payroll taxes to begin addressing this debt, with increases anticipated in subsequent years until the amount is settled.
“This situation has been labeled the biggest hidden tax,” said Rob Lapsley, president of the California Business Roundtable, who warned that if not resolved, costs associated with the debt might rise to over $400 per employee.
Jones has also criticized the Employment Development Department (EDD) for distributing billions in fraudulent unemployment benefits while legitimate businesses were forced to shut down. The total fraud is estimated to be around $20 billion, according to the resolution.
“If you don’t settle your debts, you’d expect collections to follow. But it seems like, if you’re the governor of California, you can overlook that responsibility and expect others to bear the costs,” Jones stated.
As of now, Newsom’s office has not responded to requests for comment. Earlier, the U.S. Department of Labor indicated that “strike teams” would be deployed to California, aiming to identify theft and misuse similar to actions taken in Minnesota.
