California employers could see an annual payroll tax hike of up to $6 billion if the state’s unemployment program doesn’t pay back its federal loans.From the LAT:
The unemployment insurance fund, insolvent since January 2009, relies on federal loans to pay jobless benefits. The debt is expected to hit $13.4 billion by the end of this year unless state lawmakers and the governor agree to raise payroll taxes, cut benefits or do some combination of both. An interest bill of $362 million is due in September.
By law, the state, which faces a $26-billion general budget deficit, must repay the federal loans to the EDD[Employment Development Department] by November. EDD’s failure to repay its loans by then would trigger a $325-million federal tax hike next year on employers. That payroll tax bite would rise incrementally to a maximum of about $6 billion if the loan goes unpaid and the state misses interest payments over several years.
In the face of federal unemployment debts, a number of states are now considering cutting unemployment benefits to limit payroll tax hikes that might deter business growth:
- The Michigan state legislature voted Thursday to cut jobless aid to 20 weeks, making it the first state to offer less than 26 weeks of benefits. The state owes the federal government $3.9 billion for the unemployment program, according to the Washington Post.
- The Florida House of Representatives recently passed a bill that would cut benefits to between 20 and 12 weeks, depending on the state unemployment rate.
- Arkansas lawmakers are moving to freeze unemployment benefit levels and cut the state’s program to 25 weeks.
- Indiana Gov. Mitch Daniels recently signed a law limiting eligibility for unemployment benefits, CNN reports. Temporary workers, workers on planned short-term shutdowns and employees who accept voluntary buyouts will no longer qualify for the state’s unemployment program. The law also recalculates benefits according to a worker’s annual salary, rather than the highest quarter.
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