What California Taxpayers Need to Know About Unemployment Insurance

I sincerely hope that readers aren’t turned off by the title of this column. While most taxpayers aren’t directly responsible for paying unemployment insurance taxes, the truth is we all pay and, in California, we pay a great deal more than we should.

Last week I received an email from a dentist who operates a small dental office and is required to pay the unemployment insurance tax and, sadly, is paying much more than he should because our unemployment insurance program is insolvent. Like so many other measurements of California’s performance relative to other states, our businesses – both large and small – are paying a penalty for the incompetence of our elected officials and bureaucrats.

Here’s what taxpayers should know about unemployment insurance.

California’s unemployment insurance program (UI) is funded by a tax imposed on employers. The proceeds are deposited in the Unemployment Trust Fund of the U.S. Treasury Department. States may withdraw funds from their accounts to pay unemployment benefits.

Here’s the kicker: If a state’s trust fund does not have adequate funds to pay benefits, it must borrow money from the federal fund to satisfy unemployment claims. But if a state’s UI Fund is insolvent for more than two years, that tax rate increases each year. The tax can be hefty, as much as $420 per employee per year.

Like other states, California was slammed by the pandemic. Low unemployment quickly became unprecedented levels of high unemployment. While few dispute the need for workplace closures early in the pandemic, California was much slower in reopening than more freedom-oriented states like Texas and Florida. This had a direct impact on the further decimation of the UI fund.

That’s just one reason why, by the spring of 2020, California’s UI Fund was depleted and continued to fall further behind. This required even more borrowing from the federal government.

Even worse, California was suffering from a second epidemic: an epidemic of massive fraud in the administration of unemployment insurance claims. On Gov. Gavin Newsom’s watch, the Employment Development Department (EDD) failed to process a backlog of claims for hundreds of thousands of unemployed Californians while sending out as much as $30 billion in unemployment benefits for phony claims, including fraudulent claims paid to death row inmates.

Much too late, after several legislative hearings on the lack of oversight of EDD, there were modest corrective actions taken. But this was the epitome of closing the barn door after the horses bolted.

If anyone believes that the massive EDD fraud didn’t impact ordinary taxpayers, they couldn’t be more wrong. California’s employers are directly responsible for the cost of EDD providing benefits on fraudulent claims, which means that all of us must absorb the cost of this inexcusable lack of oversight.

Perhaps the most important thing for taxpayers to know about California’s unemployment insurance program is how insolvent it is. EDD itself projects that at year’s end the UI Fund’s total debt will exceed $19 billion. Moreover, the U.S. Department of Labor confirms that California’s debt problem is the worst of any state, with an accumulated debt that exceeds the debt of all other states combined.

Again, in the competition between states, it is notable that most other states have no outstanding debt because they used Covid relief funds from Washington to pay down their Ul loans. For example, Texas approved a $7.2 billion payment and has eliminated its UI debt entirely.

What about California? Because of its insolvency, it must pay $470 million in interest payments alone to the federal government. That’s nearly half a billion that could otherwise go to education, transportation, or public safety. Worse yet, this is an annually recurring expense.

Remember just last June when California had a $95 billion surplus? That would have been the time to increase the payments to the federal government to reduce our UI debt. But now, the LAO tells us we have a $25 billion deficit “problem.”

Click here to read the full article in the OC Register

Will debt crisis bust Obama’s California ATM?

Thursday night’s Republican Presidential debate in Iowa appropriately started out with questions about one of the biggest political events of the year: the downgrading of our nation’s credit rating for the first time in history. While all the GOP candidates snapped at that “red meat,” and blamed liberal policies, the guy who as President presided over this great fiscal embarrassment, Barack Obama, probably sat in his home office in the White House mulling over his press conference on the same day, where he blamed conservatives in the GOP for the downgrade instead.
The national debt downgrade last week was bracketed by topsy-turvey financial markets. This week, billions have been lost by average investors’ retirement plans while billions were made by opportunistic professional traders on the drastic, day-by-day swings in the stock market. Respected economists are making dire predictions that the United States will sink into a second recession, that the real estate market will not recover for years, that unemployment will rise perhaps above 10%.
So all that said, as our economy is demolished, is California just going to continue to be Barack Obama’s campaign’s Automated Teller Machine?
Late last April, Obama made a two-day, six stop tour of our Golden State that purportedly raised him $7 million for his 2012 re-election campaign. Liberal political analyst Sherri Bebitch Jeffe said that California had become “Obama’s ATM”, regardless of sinking polls outside California.
That was then.
Since April, and after the Administration’s deserved “high” for getting bin Laden, a national economy that was already in the tank has come terribly close to completely imploading. Politicians in Washington hardly were able to cobble a last minute plan together to deal with our country’s terrible spending problem, as Obama pestered them, pushing more taxes on them, and on a sick economy, as a road to economic recovery. It is a miracle they got a compromise that didn’t include Obama’s new taxes – yet. His debt plan is the moral equivalent of “bleeding” as a remedy for anemia.
I wonder how much money those big donors to Obama in California have lost in the last few days with him as President. What good is an invitation to a White House dinner if your corporate jet is in receivership?
I also wonder whether the majority of the 9.4% of unemployed people in our state, whom research shows were Obama voters in 2008, will be showing up again at the polls in 2012 for him with the same enthusiasm, assuming they still have cars, auto insurance and gas money to get to the voting booths.
Jeffe predicts that Obama will still win California, no matter. It will be a sad statement of self-deprecation of Cailfornians if that happens. But I’ll bet Obama won’t raise $7 million from rich liberals the next time he comes here, because even rich liberals lose money on the stock market.