California’s Debt to US Government for Unemployment Loan Default Tops $21 Billion

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Businesses are set to pay higher payroll taxes that increase annually until the debt is repaid.

California owes the federal government about $21.1 billion, according to data released Dec. 20 from the U.S. Treasury Department, for loans the state received four years ago and failed to pay back. 

In response to a question by The Epoch Times, Gov. Gavin Newsom said finding the money to work out of the debt is a priority for his administration.

“That’s obviously a point of concern, and I’m very mindful and have been for years about this,” he said during a Dec. 16 press conference. “It’s an obligation we have. We will pay it down.”

The governor noted a need to use the budget process, when possible, to pay back some of the loan, rather than relying on the current framework whereby businesses are taxed by the federal government at higher rates to cover the debt. 

While businesses in states with no outstanding obligations pay about 0.6 percent for unemployment tax, California businesses will pay 1.5 percent, starting in 2025, and the amount will increase by 0.3 percent—which amounts to about $21 per employee—annually until the loan is repaid. 

“We just want to make sure we’re not doing it on the backs of employers as it relates to the payroll tax,” Newsom said. “I’m very hopeful that as our economic conditions continue to improve, and they are improving significantly, that we can take some big chunks out of that debt.” 

The governor said the state has worked through similar challenges in the past, resolving billions of dollars in debt incurred coming out of the Great Recession, and will use a similar path to repay the existing debt. 

Finding a solution, Newsom said, will require a cooperative partnership with all branches of state government. 

He pointed to recent efforts from his office to include money in the budget to pay back part of the loan, which he said were shot down by fellow elected officials. 

By Travis Gillmore

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