Hardworking taxpayers across America are already subsidizing California’s unemployment insurance program, and now California lawmakers want to expand unemployment benefits to include striking Hollywood actors and writers. These benefits, a giveaway to Big Labor and workers who chose to stop working as part of a private labor dispute, come as the Golden State’s unemployment insurance trust fund remains insolvent and unable to cover weekly unemployment claims.
Unemployment insurance is a federally mandated program that all states must have. The premise is simple: Employers pay a special tax that goes into a state unemployment trust fund, which is used to pay temporary, weekly benefits to workers who lose their jobs through no fault of their own.
The federal mandate that states operate an unemployment insurance program comes with a federal financial backstop to ensure that unemployment claims are paid. When a state trust fund becomes insolvent, the state may access a no-interest or low-interest line of credit with the U.S. Treasury to cover benefits. A state’s failure to rapidly repay the debt means that the state’s employers face an automatically triggered federal unemployment tax that runs until the debt is satisfied.
Implicit in this agreement is the understanding that state politicians will face political pressure from employers if they don’t restore solvency to their state unemployment trust fund. Remarkably, Gov. Gavin Newsom’s administration has expressed little interest in paying down $18 billion in federal unemployment loans, preferring to let California employers pay higher and higher unemployment taxes. At the same time, the state trust fund continues to run up billions on the federal credit card.
Expanding unemployment benefits in California means new benefits are funded not by taxes in California—that income doesn’t cover current obligations—but by the U.S. Treasury. A political win for Sacramento, then, becomes a debt paid for by taxpayers from Shreveport to Sioux Falls.
President Joe Biden has expressed support for the striking Hollywood actors and writers, and his nominee for U.S. Labor Secretary, the current acting Secretary Julie Su, administered California’s unemployment program during the pandemic when it paid out $32 billion in fraudulent claims. Taxpayers shouldn’t count on the Hollywood to D.C. corridor to look out for taxpayers in flyover country.
It will be up to Congress to protect the American people from this latest round of California folly.
With the federal fiscal year-end looming and decisions to be made about spending, Congress could clarify that the federal unemployment insurance backstop, which ultimately comes from the general fund, ends whenever a state expands unemployment benefits while its unemployment trust fund is insolvent.
Until Congress stands up for the interests of the American taxpayer, fiscally responsible states will continue to bail out the irresponsible ones like California. And until California politicians feel pressure to solve problems of their own creation, they will remain hooked on cheap federal money that builds them political goodwill at no real expense to themselves.
Brian Sikma is a senior fellow for unemployment insurance and workforce issues at the Foundation for Government Accountability.
Read Full Article »