Outgoing California Governor Gavin Newsom is leaving his successor a mess. Not that the current crop of candidates, including spousal and staff-abuser Katie Porter and anti-Trump Chinese spy friend Eric Swalwell, will do much better, mind you. The state is in desperate need of real leadership before it goes bankrupt.
But that isn't happening any time soon, and in the meantime, the burden for the state's fiscal malfeasance is being shouldered by the taxpayers and businesses. Case in point: California is one of two states that hasn't repaid the federal government the $20 billion in COVID-era unemployment loans. Now corporations are getting hit where it hurts.
California is the only state in the nation that has not paid off its federal pandemic unemployment loan.
— Ashley Zavala (@ZavalaA) December 21, 2025
Businesses large & small have been shouldering the $20B debt bc CALeg & Gov put nothing toward it.
“This is the greatest hidden tax” @roblapsley https://t.co/ULsYEQlLGQ
The Trump administration in 2020 provided the state with a $20 billion loan to cover unemployment costs during COVID-19. California leaders shut down schools and businesses during COVID-19, which resulted in the state’s major need for federal help with unemployment insurance.
Every state, except California and New York, paid the loan back with federal stimulus money, which was a debt-repayment strategy offered by the Biden administration. California lawmakers and the governor chose to hold onto those funds and use them for other expenses instead of putting it toward the loan.
Since the state did not pay back the debt within two years, federal law requires the state's employers to step in and pay up. Each employer this upcoming year, regardless of the number of employees they have and whether they are part or full-time, will pay an extra $42 dollars per employee on their payroll taxes because of the debt. In 2027 the number increases to $63 and increases another $21 per employee every year until the debt is paid.
Because the state hasn't repaid the loan within two years, federal law mandates that state businesses start repaying the debt. This means that businesses will have to pay an extra $42 per employee on payroll taxes. It doesn't matter if that employee is full- or part-time, either. In 2027, the tax increases to $63 per employee, then by an additional $21 each year until the debt is paid. With existing payroll taxes, businesses are now paying $130 per employee annually.
There are roughly 16.4 million workers, both full- and part-time. That means it will take until at least 2035 to pay back the $20 billion
Rob Lapsley, President of the California Business Roundtable, said the debt and told KCRA, "This is called the greatest hidden tax."
Lapsley warned that the tax could increase even more, too. "When you look at the potential penalties that could be imposed by the federal government, from the Trump administration, if we don't get a handle on this, we could be well up over $400 per employee," he said.
"It creates another disincentive to be able to scale and grow jobs here," Lapsley added.
KCRA reports that Gavin Newsom wanted to put money towards the debt, but the legislature wanted to "mitigate" the impacts of the higher payroll taxes. Lapsley said businesses asked Newsom to use $10 billion in federal stimulus to pay off part of the loan, but that didn't happen.
"We're not hopeful at all," Lapsley said when it came to whether or not state leaders would pay towards the principal of the loan. "There was a deliberate decision by leaders of the state for businesses to pay this."
Of course, Democrats routinely argue that businesses must "pay their fair share" with little regard for the consequences of raising taxes on employers.
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