California is facing a massive unemployment debt crisis that will burden employers and taxpayers for years to come. The state borrowed approximately $20 billion from the federal government to cover unemployment benefits during the pandemic, and with Gov. Gavin Newsom’s recent decision to not pay it back, employers are now saddled with the expense, according to experts.
The state’s unemployment insurance trust fund, which is funded by a tax on employers, ran out of money last year due to the unprecedented surge in jobless claims caused by Newsom’s lockdown orders. Instead of using the state’s budget surplus to repay the debt, Newsom proposed to cancel $1.25 billion of spending that was supposed to go toward reducing the debt and helping small businesses.
As a result, employers will have to pay an additional $21 per employee in federal unemployment insurance taxes this year, and that amount will increase by $21 every year until the debt is paid off, which could take more than a decade. This will hurt California’s economic recovery and competitiveness, as businesses will have less money to invest, hire and grow.
California’s unemployment system was already in poor shape before the pandemic, as it had not raised employer taxes or adjusted benefits for inflation since 1984. The system was also plagued by fraud, mismanagement and delays, as billions of dollars were paid to ineligible or fraudulent claimants, while many legitimate claimants struggled to get their benefits.
Newsom’s failure to address these problems and his refusal to pay back the federal loan show his disregard for California’s businesses and workers, who deserve better from their governor. Instead of saddling them with more taxes and debt, he should use the state’s surplus to repay the loan and reform the unemployment system.
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