CALIFORNIA
TAXPAYERS'
ASSOCIATION

JAMES W. BARNES
Chairman

LARRY McCARTHY
President

CAROL ROSS EVANS
Vice President

REBECCA K. TAYLOR
Chief Policy Consultant

DAVID R. DOERR
Chief Tax Consultant

STEPHEN J. KROES
Director of Research

JOYCE SHOWALTER
Director - Corporate Relations

RON ROACH
Editor

Cal-Tax Digest (ISSN 0008-0543) is published monthly, except August and December, by the California Taxpayers Association, 921 11th Street, Suite 800, Sacramento, CA 95814. Subscriptions are $59 a year. Periodicals postage paid at Sacramento, CA. POSTMASTER: Send address changes to Cal-Tax Digest, at the above address.

Unless otherwise noted, original material in Cal-Tax Digest may be reproduced, with attribution. Anyone wishing to reprint an original article or commentary is requested to first contact the editor of Cal-Tax Digest.

Opinion in this publication is that of the authors and does not necessarily reflect the views of the California Taxpayers' Association.

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It's Not About Welfare Reform

By Carol Evans, Cal-Tax vice president

What would your reaction be if you received a get-rich-quick solicitation in the mail that said you could save up to $200 and it's only going to cost you $1,000?

You'd probably wonder: Who wasted the paper, printing and postage on such a farce? (Answer: Organized labor.) Who would buy into this? (Answer: A majority of the Legislature's welfare reform conference committee.)

Unbelievably, the Senate-Assembly conference committee has been persuaded to adopt recommendations put forward by AFL-CIO, Service Employees International Union and other labor organizations that have everything to do with their own legislative agenda and nothing to do with welfare reform.

Hiding behind a justification that further liberalization of California's unemployment insurance program will keep people off welfare, the annual price tag to employers would exceed $1 billion, while estimated welfare savings might approach $200 million. The employer cost is a solid number, the welfare savings are an inflated guess at best. This is a classic example of robbing Peter to pay Paul, except lots of folks besides Paul will be reaping the benefit of Peter's loss.

Specifically, the "UI reforms" - really anti-reforms - adopted by the conference committee would change the existing base period used to determine eligibility in order to qualify claimants with minimal attachment to the labor force; lower the minimum qualifying wages to $300 in a quarter from $900, and increase the UI benefit across the board by changing the replacement formula to 50 percent of wages rather than 39 percent. And the coup de Gras: a new welfare-type benefit add-on that would pay $25 per week per dependent up to $100 per week.

The whole focus is wrong-headed in a number of ways. First, to borrow a phrase from William Campbell, president of the California Manufacturers Association, this is biting the hand that feeds you. California needs to be developing and enacting strategies to enhance the transition from welfare rolls to payrolls. Making it more expensive to be an employer in California is just the reverse of what should be happening.

Second, these reforms appear to assume the worst, that no former welfare recipient entering the labor market will be able to hold a minimum wage job longer than 60 hours. This isn't exactly a positive message to be sending to employers or welfare recipients looking for work.

Third, these anti-reforms convey that we have so little confidence in the state's ability to adapt to a welfare-to-work strategy that we better create a new safety net. But let's avoid calling it Welfare II, and instead just hide it within the unemployment insurance program and make employers pay for it.

And finally, let's get real. Because UI tax rates are determined by a formula based on the UI Fund balance and employment figures, no legislative authorization is needed to increase the tax rate. It happens automatically. So if these anti-reforms are successfully packaged in a welfare program, even though employer taxes will effectively have been increased by a whopping $1 billion per year, easily the largest business tax increase ever, legislators will be able to innocently state they didn't vote for a tax increase on business.

To put this number in perspective, it would be the equivalent of a 22 percent increase in the bank and corporation tax. Not exactly small potatoes in the politically popular era of no new taxes.

These labor-backed shenanigans do nothing to inspire or sincerely aid in the effort to create jobs, or train people to take and keep these jobs. Any benefit to welfare recipients in the form of UI benefits is just a coincidence being exploited by organized labor in order to achieve their agenda. Call it a charade, call it a scam, and then call your legislator.