By MADISON HIRNEISEN
THE CENTER SQUARE STAFF REPORTER
(The Center Square) — California lawmakers are weighing a proposal that would allow tax credits for small businesses across the state as employers brace for an increase in unemployment insurance tax rates.
California owes nearly $20 billion to the federal government after it borrowed the money for the state’s Unemployment Insurance Trust Fund, which went insolvent in the early months of the COVID-19 pandemic as unemployment claims flooded in.
The Assembly Committee on Insurance advanced a bill last month that would use a portion of the state’s surplus to partially pay down the federal Unemployment Insurance loan. Lawmakers on the same committee rejected a separate measure to use the state’s surplus to pay down almost all of the debt owed.
As a result of the debt, California employers will see payroll tax increases related to unemployment insurance. To offset some of the cost of these increases, Assembly Bill 1864, authored by Assemblymember Mike Gipson, D-Carson, would allow for a tax credit of $434 per qualified employee to a small business employer with fewer than 49 employees on average during the taxable year.
“This tax credit is simply a way to help out small businesses and provide an incentive to hire locally in the least complicated manner,” Gipson’s office told The Center Square in an email. “We set the dollar amount at $434 because of a UI calculation, but this was more a reference point for that amount and isn’t intended to stay connected with UI increases.”
The legislation includes specific requirements for a worker to be considered a “qualified employee.” The bill defines a “qualified employee” as a worker who is full time, lives within a five-mile radius of their work and has worked for the employer for at least six months but less than 18 months when the credit is claimed.
The legislation would take effect in January 2023 and has a sunset date of Dec. 1, 2028.
The bill comes after many small businesses across California were hit hard by the pandemic and are still working to recover. By September 2020, 40,000 small businesses had closed in California — half of which had closed permanently, according to a New York Times review of Yelp data.
Supporters of Assemblymember Gipson’s bill told the Assembly Revenue and Taxation Committee Monday that the bill would incentivize small businesses to hire locally and ease the burden on employers.
“Fiscal incentives like AB 1864 will provide a competitive advantage to small business owners and combat job scarcity in local communities,” Small Business Majority Policy Director Bianca Blomquist told lawmakers Monday. “The local hire tax credit is a common sense approach to assist small business owners and employees facing local economic hurdles to employment.”
Some lawmakers on the committee questioned whether this bill would have any real impact on the number of people employed locally at small businesses and whether $434 is enough to “move the needle” on hiring.
“According to the analysis, this type of credit at a state level is not usually successful,” Assemblymember Bill Quirk said Monday. The bill analysis states that “among states where employers could qualify for credits immediately after enactment of the credit legislation there was a slight employment increase of 0.12%.”
“This ([bill) is so specialized, it could even be less,” Mr. Quirk said.
The bill was heard for testimony only on Monday and will be taken up for a vote at a later date.
Madison Hirneisen covers California for The Center Square.