Unemployment Insurance Fix Requires More than Taxes

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

The Brown Administration is looking for a solution to the $10-billion owed to the federal government for loans to cover Unemployment Insurance payments. Much talk revolves around tax increases on business to cover the debt. But, any fix should include reforms to the system.

Paying higher taxes means less money for business to hire the unemployed workers – the best answer for the worker and the best way to heal the California economy. Steep tax increases are a deterrent for businesses to hire.

Yet, the unemployment insurance debt must be dealt with.

California suffered some of the highest unemployment in the nation during the Great Recession – in fact California’s unemployment is still high even though the numbers are better today – and with the state’s large population, to cover so many people out of work, the state borrowed.

While California businesses with employees receive a credit against their federal unemployment tax (employers also pay a state unemployment tax), employers are subject to a credit reduction each year while the debt is outstanding. With the credit reduced, employers’ federal unemployment tax goes up. Each year that the tax credit is reduced, the federal tax increases about $21 per employee. Statewide, that can add up to billions in short order.

What the business community hopes to get from the administration is a balanced fix to the problem that won’t discourage job creation while dealing with system reforms including benefit eligibility and fraud issues among other points.

Most business leaders expect taxes will be part of the fix formula – it should not be the major part of the formula.

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