For all the budget debate about whether to extend 2009's small taxes on income and sales, the most worrisome tax increase on the horizon is a payroll tax on California employers. Payroll taxes have significant, negative impacts on jobs.
How could this happen? In short, California's unemployment insurance fund has been insolvent for more than two years. Federal loans to the state have been used to pay benefits, and those loans need to be paid back.
The state legislature and the governor could decide how to do that themselves -- through some combination of raising payroll taxes and cutting benefits. But given the record of cooperation between the legislature and governor on spending and tax issues (which is, let's be charitable, a limited record), there's reason to believe they won't be able to agree.
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In that case, a federal payroll tax on California employers could be triggered. The LA Times reports this morning on a new state auditor's reporting showing that those payroll taxes could eventually rise to $6 billion.