California Proposes Hiking Unemployment Insurance Taxes

November 10, 2008

While Californians are mulling Governor Arnold Schwarzenegger (R)’s proposed sales tax increase into double-digit territory (see here and here), on Thursday he also came out with a proposal to hike taxes employers pay into the unemployment insurance fund:

Businesses currently are taxed on the first $7,000 a year that an employee earns. Schwarzenegger would increase that amount to $10,500 and would boost contributions that employers pay into the fund by between $56 and $416 per worker. Companies now pay a maximum $434 per worker. That maximum would rise to $850 a year in January 2010.

The governor will cut the amount that some unemployed workers receive from 50 percent of their weekly pay to 45 percent.

For example, a worker who earned $800 a week and lost his job currently gets a $400 weekly check. Starting in January 2009, that benefit would drop to $360 a week.

People who earn $52,000 or more a year won’t be affected because the $450 maximum weekly benefit is unchanged.

The administration’s plan takes a little away from everyone, Employment Development Department spokeswoman Loree Levy said.

The tax increases wouldn’t take effect until 2010, according to the plan, which is premised on receiving federal loans and grants for 2009 to cover the program’s losses. If such aid is not forthcoming, they could probably be moved up.

Politicians coast to coast are publicly fretting about lost jobs and economic slowing. If that’s a concern, proposals like this that increase employers’ cost of hiring worker (doubling unemployment tax burdens) ought to be carefully considered.

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