News & Updates - Refusal to Address Unemployment Insurance Fund Debt Undermines Critical Safety Net Program and Guarantees Massive Tax Increase on All Businesses


July 1, 2021

 SACRAMENTO—The California Legislature has rejected efforts to begin to pay down even the smallest fraction of an estimated $22 billion Unemployment Insurance (UI) Fund debt, undermining the long-term integrity of the program and guaranteeing that businesses of every size will be forced to pay higher taxes in an effort to pay off the debt.

“The UI Fund has been critically important during the recession, helping provide support for workers who lost their jobs due to government-mandated closures. But now the Legislature is refusing to provide the program critically needed funding that will help alleviate the $22 billion—and growing—debt the fund has accumulated after the fifth-largest economy shut down for 15 months,” said Rob Lapsley, president of the California Business Roundtable.

Employers are paying higher taxes now and must be addressed now. While the state rates were on course to go down prior to the pandemic, the rapid deterioration of the state fund’s viability means these higher rates are now likely locked in for another decade or more.

In addition, federal taxes on employment will go higher as well. As a participant in the federal unemployment fund program, the state cannot carry a UI Fund debt for more than 34 months. If the state continues carrying the debt, businesses will automatically incur an annual payroll tax increase until the fund debt is paid off. Because of the size of the current UI Fund debt, it is unlikely that the debt will be paid off before the next recession hits, creating a permanent tax increase on all businesses while ensuring this critical safety net will not be there to help workers in the next economic downturn.

The current UI Fund debt is slated to grow to more than twice the debt the fund incurred during the Great Recession. It took nearly 10 years to pay off that debt, with funds coming from an increase in businesses’ state and federal payroll taxes.

“California businesses already pay the highest unemployment fund tax rate, plus a 15 percent surcharge. Without a significant investment from the state to address the massive UI Fund debt, businesses are now on the hook to pay for debt that they didn’t create and cannot afford to pay back.

“There is no time to delay. This tax increase is hurting employment now, and even higher taxes will go into effect when the federal increases kick in as well.  The troubling reality is that businesses will likely never be able to pay off this debt. The debt is so large that we will likely experience another recession before the current debt is paid, creating debt in the fund and erasing any progress businesses have made to pay off existing debt. Permanent insolvency of the state’s most critical safety net program is probable if the state does not intervene,” Lapsley concluded.

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