Tax hike on California employers spurs plea for help to cover Gavin Newsom’s ‘failures’

A state senator is calling on Congress to bail out California and stop employers from picking up the tab on a $20 billion debt Gov. Gavin Newsom and Democratic lawmakers have so far refused to pay.

Senate Minority Leader Brian Jones issued a joint resolution with other Republican state senators urging Congress to suspend looming federal payroll tax increases tied to the state’s unpaid unemployment insurance (UI) debt.

California employers will soon pay a 5.2% payroll tax — nearly nine times as much as those in other states that are debt free, according to the California Business Roundtable.

The burden could be especially hard on small businesses, which account for 99.8% of all businesses in the state and support 7.6 million jobs, according to Jones’ office.

“Every other state paid down its debt, but not California,” Jones said in a statement, arguing that businesses are being forced to absorb the cost of California and Newsom’s passing of the buck.

“Now, businesses that survived shutdowns, kept employees on payroll, and held their communities together will pay for Gavin Newsom’s failures.”

Most states used federal stimulus funds to pay down their unemployment debts, but California instead directed money toward infrastructure, homelessness and other priorities.

Jones’ measure asks Congress to stop raising federal unemployment taxes on businesses when a state’s own actions — like forcing shutdowns during COVID-19 or failing to prevent unemployment fraud — caused the debt in the first place.

Employers are expected to pay an additional $42 per employee in federal payroll taxes this year to help chip away at the debt, with the amount expected to rise annually until the balance is paid off.

“This is called the greatest hidden tax,” California Business Roundtable President Rob Lapsley told KCRA, warning that penalties tied to the debt could eventually exceed $400 per employee if the issue is not addressed.

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Jones called out the state’s Employment Development Department (EDD) for paying out billions of dollars in fraudulent unemployment claims while real businesses were forced to remain shuttered. 

The total amount of fraud is estimated to be at least $20 billion, according to the resolution.

“If you don’t pay a bill, you’ll get hounded by a collection agency,” Jones said. “But apparently if you’re the governor of California, you can ignore the tab and force someone else to pick it up.”

Newsom’s office did not immediately respond to a request for comment.In February, the U.S. The Department of Labor sent a letter to EDD announcing a “strike team” would be coming to the Golden State to root out theft and abuse similar to efforts in Minnesota.