News & Updates - Underfunding of Unemployment Insurance Fund Debt Guarantees $23 Billion Tax Increase on All Businesses

May 14, 2021

SACRAMENTO—As part of the governor’s $267.8 billion record-breaking state budget, the governor today announced he is proposing just $1.1 billion to address the state’s $24 billion Unemployment Insurance (UI) Fund debt.

“We recognize and appreciate the governor’s investments in supporting economic recovery for California businesses. However, nothing shows the stark inequity of the pandemic economy than the state’s $75.7 billion surplus and its concurrent $ 24 billion UI Fund deficit. The UI Fund deficit is the biggest threat to all businesses in California and their ability to bring back workers to their jobs. That is why earlier this week we called on the governor to dedicate a substantial amount of federal dollars to addressing the massive debt currently threatening the future of the fund,” said Rob Lapsley, president of the California Business Roundtable.

The UI Fund is the single most important safety net program for working Californians and its solvency should be one of the state’s highest priorities. 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’ payroll taxes. Now, the state is facing a $24 billion debt, which means a continuing increase in businesses’ federal FUTA tax payments as well, leading businesses to get hit by two tax increases to pay off the debt.

“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 will be on the hook to pay for debt that didn’t create and cannot afford to pay back,” Mr. Lapsley continued. “Business resources should be devoted to rebuilding jobs, not paying off yet another massive debt created by the state.”

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 crisis.

“The current UI Fund threatens the long-term viability of the most important safety-net program for working Californians. The funding proposed today is simply inadequate. We call on the Legislature to significantly increase funding to stave off a $23 billion tax increase on businesses that can least afford it and provide stability to this critical program,” Mr. Lapsley concluded.

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