FACTS ABOUT SB 546

• SB 546 increases wage taxes by $714 million. The tax is levied on employers, based directly on an employee's wages. It will lead to lower wages and cause unemployment as employers seek to accommodate the increased wage cost. This size tax increase is equivalent to raising the corporate income tax by 13 percent.
  
  
• SB 546 is unconstitutional -- it violates Proposition 13. The Legislature is attempting to pass this tax increase with a majority vote. The state Constitution requires that the Legislature muster a two-thirds vote for any tax increase bill to pass. This requirement was placed in the Constitution by Proposition 13 in 1978.
  
  
• The courts have declared that unemployment insurance (UI) contributions are taxes. The California Supreme Court has said that the term "contributions" is "a euphemistic expression meaning tax exactions." In another case, the court said "The Supreme Court has definitely decided that contributions paid by an employer under the Unemployment Insurance Act constitute excise taxes."
  
  
• Legislative Counsel has, in the past, declared that UI contributions are taxes. AB 4000 in 1984 was keyed as a "tax levy" bill by Legislative Counsel. It increased taxes in the same manner as SB 546, along with other provisions.
  
  There is no acceptable explanation for the Legislature's attempt to increase the tax without the constitutionally required two-thirds vote.
  
  Benefit increases in SB 546 are inappropriate without other reforms. The California employer community has long tolerated an extremely liberal unemployment insurance program compared to other states. Using any measure, California is by far the easiest state in which to qualify for UI benefits. In order to maintain reasonable UI costs, the historical trade-off to support California's broad eligibility has been lower benefits. Any benefit increases are inappropriate unless accompanied by meaningful eligibility reforms.
  
  For example, the U.S. Department of Labor has recently recommended that states establish eligibility requirements that require an individual to have worked at least 20 weeks before becoming eligible. Such a labor force attachment test is nonexistent in California. In this state, an individual can qualify as soon as they earn $1,125, be it in one day, or fewer than five weeks at the $5.75 minimum wage. Clearly, there is substantial room for improvement.

Following is a table showing the states with a maximum weekly benefit of $300 or more and their corresponding labor force attachment test, expressed in weeks of work required.

¹ Maximum benefit varies annually from $205 to $300 depending on state trust fund balance.
² $2,906.52 and wages in 2 quarters. California requires $1,125.

Sources: UWC Research Bulletin, March 1999. Highlights of State Unemployment Compensation Laws, January 1998; National Foundation for Unemployment Compensation & Workers' Compensation. Comparison of State Unemployment Insurance Laws, January 1998; U.S. Department of Labor.