Will Swaim writes for National Review Online about the California governor’s false promise about the future of state taxes.
Confronting the nation’s largest-ever state budget deficit, California’s Democratic governor, Gavin Newsom, has been throwing overboard almost every government program not tied to a legal mandate. Despite progressive demands, he’s sounding for once like a fiscal conservative: There’ll be no new taxes.
“When considering [California’s] 8.84 percent corporate tax — which is the highest, arguably, depending on how you analyze it, in the country — no, I’m not prepared to increase taxes,” Newsom told a May 10 press gaggle. “We have among the highest tax rates in the United States of America for high-wage earners, we have among the highest tax rates, as I noted, for corporate taxes. . . . I feel strongly that we have to live within our means.”
But Newsom was already lying. By defaulting on $20 billion in federal Covid-era unemployment-insurance loans, Newsom triggered an automatic hike in federal payroll taxes paid by California employers.
The repayment program, laid out in the Federal Unemployment Tax Act, or FUTA, is squeezing already straitened California businesses. What’s especially painful to business owners is that the payroll tax hike is raining down upon the just and the unjust.
“The increase comes notwithstanding the claims experience of the employer,” says Douglas J. Holmes, president of the National Foundation for Unemployment Compensation and Workers’ Compensation. “Employers who never lay off employees suffer significant percentage increases over their otherwise low rates.”
And then there’s this terror: the tax rise every year that “California fails to repay the federal loan,” Holmes notes — from an additional $21 per employee this year to $42 next year and so on, until the state’s businesses have fully paid for Newsom’s folly.
That’s going to mean tough times for California business owners.
