The California Democratic Party already makes it prohibitively expensive to run a business in the Golden State, with some of the nation’s highest housing costs, electricity prices, and burdensome environmental regulations. So the state cannot afford to make its business environment worse. But that is what it is doing. On top of the burdens it already heaps on the state’s economic engines, it is slapping yet another expense on California businesses. And this one was caused entirely by Gov. Gavin Newsom‘s (D-CA) inability to pay the state’s bills on time.
Title XII of the Social Security Act authorizes states to borrow money from the Federal Unemployment Trust Fund when a state’s unemployment trust fund is at risk of insolvency. The lockdowns during the COVID-19 pandemic prompted 20 states, including California, to use this borrowing right. Almost every state that took out a loan from the FUFT paid it back in 2021 with federal stimulus funds from either the CARES Act of 2020 or the American Rescue Plan of 2021.
But not California. It chose a different path. Instead of using federal stimulus funds to pay off the state’s $20 billion unemployment insurance loan, Newsom sent $12 billion in stimulus checks to California voters. He had a chance to pay off California’s unemployment insurance debt again in 2022 when his state posted a $100 billion budget surplus. But Newsom blew the surplus on a wild spending spree, including his infamous high-speed train to nowhere, plus free healthcare for illegal immigrants.
Newsom’s unwillingness to pay California’s bills means that businesses in the Golden State have had to pay an additional $21 per employee in tax this year to pay off the state’s still-unpaid unemployment insurance loan. That fee is set to double to $42 in 2026, then rise to $63 in 2027, climbing another $21 per year until the loan is finally paid off in 2029 or 2030.
“This is called the greatest hidden tax,” California Businesses Roundtable President Rob Lapsley said this week. “There was a deliberate decision by leaders of the state for businesses to pay this.”
“That debt is increasing annually, and now it’s become a problem for both large and small businesses,” he continued. “It creates another disincentive to be able to scale and grow jobs here.”
California remains the largest and wealthiest state in the nation, but its economic recovery since the COVID-19 pandemic has been anemic. Nationally, nonfarm payrolls are 4.8% higher today than they were before the COVID-19 lockdowns. In California, they are just 1.9% higher than they were. The private sector makes the California economic outlook even bleaker. While the rest of the nation has seen private sector jobs grow by 6.2% since COVID-19 began, California’s private sector has grown only 1.6%. Given this, it’s not surprising that California has the highest unemployment rate in the nation at 5.6%.
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Newsom has all but announced his intention to seek the Democratic Party’s presidential nomination for 2028, and he is already widely considered the front-runner for that race. Before Democratic Party primary voters make that choice, however, they should consider Newsom’s weak economic record in California, caused by his continued insistence on profligate spending, the true costs of which he eagerly passes on to businesses that can balance their books only by raising prices and limiting job growth.
Before voters consider handing Newsom the keys to the White House, they should ask why California businesses are still paying for his unpaid bills and broken economic promises.