Governor Brown delivers the State of the State speech

Calls for new taxes and additional unemployment insurance surcharge in proposed budget

This week Governor Brown delivered the annual State of the State speech before both houses of the legislature where he outlined his proposed state budget that is centered on a proposal to raise nearly $7 billion in new sales and income taxes, enact more budget cuts, and increase public works spending.

The state faces a $12.8 billion deficit over the next 19 months after relying on optimistic projections and onetime budget patches, according to the non-partisan state Legislative Analyst's Office.

During Governor Brown’s campaign for Governor in 2010, he committed to have any tax increase proposal put before the people for a decision. His current proposal to raise nearly $7 billion in new taxes is out on the street with signature gatherers hoping to meet the needed threshold of signatures in order to put a ballot measure on the November 2012 ballot. Governor Brown has stated that, if approved by voters, the revenue from the proposed initiative would only go to education and public safety.

The specifics of the tax proposal are as follows:

Personal Income Tax Increases for 5-years (2012 through 2016):

  • 1% increase for residents who earn more than $250,000 annually;
  • 1.5% increase for residents who earn between $300,000 and $500,000; and
  • 2% increase for residents who earn more than $500,000.

Sales Tax Increase for 4-years (2013 through 2016):

  • The proposal also would increase the state sales tax by half a cent for four years.

Governor Brown stated the following: "This initiative dedicates funding only to education and public safety -- not on other programs that we simply cannot afford……….The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety and our courts.”

Governor also calls for new unemployment insurance surcharge

The governor’s proposed budget is a starting point for the 2012 budget cycle that will include several months of legislative hearings and the need for both houses of the Legislature to approve the final product by June 15, 2012. Undoubtedly the budget that was introduced by the governor will be altered as the budget proposal moves through the legislative process.

But one very alarming aspect of the governor’s proposed budget is the suggestion for a new unemployment insurance (UI) surcharge on employers starting in 2013, in addition to the newly imposed federal surcharge. The surcharge is proposed to pay the accrued interest on the outstanding UI loan from the federal government. The governor’s proposed surcharge likely will be in the form of an increased employment training tax (ETT), which employers currently pay at a rate of 0.1% on the first $7,000 of each employee’s wages. The amount of the surcharge in each year would be based on the Employment Development Department’s (EDD) projections of interest costs in the following year. “The EDD estimates that the annual increased cost to employers will be between $40 and $61 dollars per employee over the next few years, gradually declining as the federal loan is paid off,” the legislative analyst said in a report on the governor’s budget proposal.

The governor’s budget also proposes to increase the earnings threshold an unemployed worker has to satisfy in order to receive unemployment benefits. The governor’s proposed employer surcharge would be limited to repayment of interest on loans to keep the UI fund solvent. The proposal unfairly target s employers and does little to address the overarching problem of the insolvency of the UI fund or the long-term imbalance between the UI fund revenues and expenditures.

The California UI system has been long overdue for a comprehensive makeover and this proposal unfairly targets employers to prop up the fund, while kicking the can down the road on real reform at the expense of job creators.