California’s Ticking Unemployment Insurance Time Bomb Set to Blow

In June, Tom Sheehy, Principal and Founder of Sheehy Strategy Group, warned that if California did not begin paying off its massive debt to the federal government, taxes would increase on business owners. Unfortunately, it looks as if those tax increases are about to begin.

During the height of the COVID pandemic last year, California borrowed more than $21 billion from the federal government to continue providing unemployment benefits after California drained its own fund.

Governor Newsom proposed using $1 billion of the state’s $38 billion budget surplus to begin paying down the debt. However, the State Legislature had different ideas.

The budget recently passed by the Legislature does not earmark any money towards the debt. Zip. Zero. Nada.

This choice not only undermines the integrity of the UI fund but will have devastating effects on businesses across the state.

By not paying down the debt, the annual taxes on employers could spike up to 900%. Currently, employers pay $42/year for each employee. When this new tax kicks in, the employee tax could rise as high as $420/year.

This staggering increase will seriously hurt large businesses with capital reserves. It will crush small businesses that are already struggling in the wake of COVID. Sheehy warns that this will lead to job cuts and layoffs, only furthering the damage.

Newsom and the Legislature must do better. They need to find a way to defuse the ticking time bomb of debt before California’s businesses face the aftermath.

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