Republican federal budget proposals would significantly widen California’s already extreme income inequality by slashing essential programs like Medi-Cal and CalFresh while delivering massive tax breaks to the wealthy. State leaders must take action to protect Californians by preventing harmful cuts.
The gap between the rich and poor in California is vast, and the majority of Californians believe this is a problem that policymakers should address. However, Republican federal budget proposals would significantly widen inequities by taking health care, nutrition assistance, and other essentials away from millions of people to fund massive tax breaks for the wealthy. These proposals would also deepen racial and ethnic inequities, with cuts falling hardest on Californians of color and tax benefits predominantly enriching white Californians.
California’s leaders should do everything possible to combat inequality and protect their communities from these federal threats by first working to prevent or mitigate harmful cuts, while also developing strategies to protect their communities if those cuts are enacted. State policymakers can safeguard essential services if they equitably raise new state revenue by ending costly tax breaks that further enrich the wealthy and corporations who will be the primary beneficiaries of federal tax cuts.
California’s Stark Income Inequality
While millions of Californians struggle to afford food, housing, and other necessities as the state’s affordability crisis worsens, a tiny sliver of the population enjoys extreme income and wealth. The richest 0.1% of Californians had an average income of $12.9 million in 2022 (the most recent year for which data are available) — about 250 times the average income of middle-income Californians ($51,300). The top 0.1% earn in just over a day what the average middle-income Californian makes in an entire year. The richest 1% of Californians, with an average income of $2.6 million in 2022, can make in about one week what the average middle-income Californian earns in a year.
Collectively, the richest 0.1% of Californians — nearly 17,500 households — have more income than the roughly 3.5 million households in the middle fifth. In other words, a population roughly the size of the city of Los Angeles is out-earned by a group small enough to fit inside a sports arena. Specifically, the top 0.1% had 12% of all income reported for state tax purposes in 2022, while the middle fifth had 9% of all income. Altogether, the richest 0.1% of Californians reported about $226 billion in income for state tax purposes that year.
Corporate Profit Growth Far Outpaces Workers’ Wage Increases
Corporations have seen skyrocketing profits in recent years, but these gains have failed to trickle down to the workers who help make those profits possible. California corporate profits reached $365 billion in 2022, reflecting a 133% increase since 2002 in inflation-adjusted terms. In contrast, the typical Californian’s earnings have barely kept up with inflation. Median annual earnings for a full-time, year-round worker rose by just 8% during that period, after accounting for inflation. While data on California profits after 2022 is not yet available, corporate profits nationally have continued to rise.
Corporations with state profits of at least $10 million — which represent just around 0.5% of all profitable corporations in the state — saw their profits in California more than double from 2017 to 2022, soaring from $113 billion to $220 billion. In contrast, Californians’ purchasing power declined during this period due to high inflation, a phenomenon that someresearcherssuggest has been amplified by corporations keeping prices high even as their costs declined following pandemic-era cost spikes due to supply chain issues. Households with low incomes have been hit hardest by inflation because prices have risen more for necessities that make up a larger share of their spending.
Republican Federal Budget Proposals Would Worsen Income Inequality
Proposed federal budget and tax cuts would greatly exacerbate the already stark inequalities in the state by slashing assistance that helps millions of Californians meet their basic needs while extending and potentially expanding tax breaks that primarily benefit wealthy people and corporations.
While the details of these cuts have yet to be determined, the budget resolution passed by Congress in April instructs the House committee with jurisdiction over Medicaid (Medi-Cal in California) to make cuts on of at least $880 billion over ten years and instructs the committee with jurisdiction over the Supplemental Nutrition Assistance Program (SNAP, known as CalFresh in California) to make cuts of at least $230 billion. These cuts would be roughly equal to the share of the proposed tax cuts that would go to the richest 1% of Americans. Federal cuts could also target other programs that help people meet their basic needs, such as income support for families, older adults, and people with disabilities.
what is medicaid?
Medicaid, known as Medi-Cal in California, provides free or low-cost health coverage for nearly 15 million Californians — over one-third of the state’s population — including children, pregnant individuals, seniors, and people with disabilities. Cutting Medi-Cal funding would mean taking critical care away from residents who need it the most.
what is snap?
SNAP, known as CalFresh in California, provides modest monthly assistance to over 5 million Californians with low incomes to purchase food. Proposals to cut this powerful anti-poverty program and implement harsh work requirements would make it harder for millions of people with low incomes to put food on the table.
Families with low incomes would be worse off, while wealthy households would get a windfall if Congress makes the deep cuts to Medicaid and SNAP included in the budget resolution instructions for the House and extends provisions of the 2017 federal tax law. Specifically, the top 1% of Americans would gain $43,500 a year on average while the bottom fifth of Americans would lose $1,125 annually from the combined impact of the deep cuts to Medicaid and nutrition assistance and the extension of the 2017 tax law that mainly benefits wealthy people and corporations. In California, the reduction in Medi-Cal benefits alone could be akin to losing $1,948 in income, or about 8.7% of the average income of the bottom fifth of households.
Republican Federal Budget Proposals Would Worsen Racial Inequality
Proposed cuts to Medicaid (Medi-Cal) and SNAP (CalFresh) paired with massive tax breaks for the wealthy would also widen already stark racial inequities both nationally and in California. Cuts to health and food assistance would overwhelmingly harm Californians of color, who are more likely to benefit from these programs due to the long legacy of racist policies and practices that have excluded them from income and wealth-building opportunities. About 8 in 10 Californians who are enrolled in Medi-Cal are people of color, including 57% who are Latinx, 12% who are Asian, 7% who are Black.1Center on Budget and Policy Priorities analysis of US Census Bureau, American Community Survey data 2022-23. Latinx includes all individuals who identify as Latinx, regardless of race. 20% of Medi-Cal enrollees are white (not Latinx), while another 5% are multiracial or identify with another race not elsewhere specified. More than 7 in 10 Californians who head households enrolled in CalFresh are people of color, including 43% who are Latinx, 13% who are Asian, and 11% who are Black.2Center on Budget and Policy Priorities analysis of US Census Bureau, American Community Survey data 2022-23. Latinx includes all individuals who identify as Latinx, regardless of race. 27% of CalFresh heads of household are white (not Latinx), while another 5% are multiracial or identify with another race not elsewhere specified. In contrast, because racial income and wealth gaps are already vast due to centuries of structural racism, any tax policy that redistributes benefits to people with high incomes or wealth will disproportionately benefit white people. Nationally, in 2018 white households received 80% of the benefits of federal tax cuts enacted during the first Trump Administration even though they comprised 67% of households. In addition, research finds that white households generally receive 88% of the benefits of any corporate tax break, while Black and Latinx households receive just 1%.3This excludes the share of benefits of corporate tax breaks that go to foreign investors.
Federal Republican Tax Proposals Would Provide a Massive Windfall for the Wealthy
The details on what tax cuts will ultimately be included in the federal budget package is still uncertain, but the centerpiece will be extending or making permanent all or most of the provisions of the 2017 tax law enacted in the first Trump administration that are set to expire at the the end of 2025. Republican leaders are also considering additional tax cuts on top of extending the expiring provisions.
Increase or Elimination of State and Local Tax Deduction (SALT) Cap
One provision of the 2017 tax law that federal lawmakers may not fully extend is a limitation on the amount of state and local taxes that households can deduct for federal tax purposes (the “SALT” cap). Some federal leaders have indicated they would eliminate or raise the cap, which would result in a larger federal tax break for the top 1%. In California, extending all of the 2017 law’s provisions except for the SALT cap could provide an annual tax cut of nearly $73,000 to the state’s richest 1%.
Additional Tax Breaks for Corporations
In addition to extending the expiring individual provisions, Republican leaders also want to provide additional tax cuts for corporations, which would primarily benefit corporate shareholders, who are disproportionately wealthy and white, as well as foreign investors. Proposals include restoring already expired provisions of the 2017 law that provided more generous tax treatment for corporations, and cutting the corporate tax rate — reduced from 35% to 21% in the 2017 law — even further.
Tax Exemptions for Tip, Overtime and Social Security Income
The tax proposals Trump has put forward to exempt income from tips, overtime pay, and Social Security benefits from taxation would disproportionately benefit higher-income people. Additionally, tax exemptions for tip and overtime income would invite more worker exploitation and create gaming opportunities for employers and high-income employees.
Trump Tariffs
While not directly a part of the federal budget negotiations, Trump has suggested revenue from tariffs could offset the costs of extending and increasing tax cuts for wealthy people and corporations. The impacts of tariffs will exacerbate harms for people already struggling most with high costs of living. Tariffs largely increase the prices of goods, and these price hikes fall hardest on lower-income households relative to their incomes.
Republican Federal Budget Proposals Would Widen Inequality in Every California Congressional District
Across California, the federal budget and tax cuts would represent a large upward redistribution of resources from families already struggling with the costs of living to the wealthy who barely notice when the cost of essentials increases. Millionaires, who stand to benefit most from the proposed tax cuts, represent just between 0.2% and 2.8% of residents in each of California’s Congressional Districts. In contrast, large shares of residents in these districts could be harmed by cuts to Medi-Cal or CalFresh. In the majority of California’s districts, at least one-third of residents receive critical health coverage through Medi-Cal. Half to two-thirds of residents in 10 districts rely on Medi-Cal for health care. Additionally, at least 10% of residents in most districts count on CalFresh to buy groceries, with at least 20% using CalFresh to feed their households in eight districts.
State Leaders Should Protect Californians From Increased Hardship and Inequality
Policymakers should invest in the well-being of everyday people, not just the wealthy. But federal Republicans are pushing forward with plans to slash health care and other vital services that millions of people count on every day — all to further enrich the top 1%. These proposals would widen the already extreme income inequality in California, deepening racial and ethnic inequities and making it even more difficult for all Californians to prosper. State leaders should do everything they can to protect their communities from these threats, including ending costly tax breaks that further enrich the wealthy and corporations who will reap the majority of the benefits of these federal proposals. This would allow California to equitably raise new state revenue to shield communities from federal threats this year and beyond and safeguard essential services that promote the health and economic well-being of all Californians.
Center on Budget and Policy Priorities analysis of US Census Bureau, American Community Survey data 2022-23. Latinx includes all individuals who identify as Latinx, regardless of race. 20% of Medi-Cal enrollees are white (not Latinx), while another 5% are multiracial or identify with another race not elsewhere specified.
2
Center on Budget and Policy Priorities analysis of US Census Bureau, American Community Survey data 2022-23. Latinx includes all individuals who identify as Latinx, regardless of race. 27% of CalFresh heads of household are white (not Latinx), while another 5% are multiracial or identify with another race not elsewhere specified.
3
This excludes the share of benefits of corporate tax breaks that go to foreign investors.
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key takeaway
Federal funding cuts to the Victims of Crime Act (VOCA) threaten essential services for survivors of domestic violence, creating instability for service providers who rely on these funds. To ensure survivors receive the support they need, state and federal policymakers must prioritize stable, ongoing funding and prevent further cuts to VOCA.
Every Californian deserves to live in a world free from violence. However, this is not the reality for millions of Californians — especially women, people of color, transgender, and non-binary Californians — who experience domestic and sexual violence every year. Programs that provide essential services to survivors are critical tools in protecting survivors’ safety and helping them heal and recover. However, federal cuts have resulted in large funding gaps for these programs, and ongoing threats by Congressional Republicans and the Trump administration, including a federal funding freeze or additional budget cuts, would harm the ability of service providers to support survivors. Ongoing funding at the state and federal level is needed to ensure that survivors are provided with the crucial services they need.
How are Programs Supporting Survivors of Domestic and Sexual Violence Funded?
California receives federal dollars through the Victims of Crime Act (VOCA) that help fund programs that provide survivors with services like emergency shelter, counseling, and financial assistance. However, anticipated cuts, a priority of Congressional Republicans, to VOCA at the federal level would result in a roughly 45% cut to state grants for organizations that support survivors of crime, decimating the funding of many of these organizations who rely entirely on VOCA dollars to provide these critical services. Additionally, the Trump administration has already proposed actions that would threaten the ability of VOCA and other related funding to reach service providers.
Where Do the Victims of Crime Act Funds Come From?
The Victims of Crime Act was a bipartisan effort passed in 1984 with the purpose to help survivors of crime with the associated costs like medical bills and lost wages. The passage of VOCA established the Crime Victims’ Fund, which is what holds the dollars to support survivors. The money in the fund is collected by the federal government and comes from criminal fines, penalties, forfeited bail bonds, and special assessments paid by people or corporations convicted of federal crimes.
Those dollars do not directly go to states. Congress authorizes the release of a set amount of money, or cap, each year from the fund. As shown in the following diagram, the process of distributing the funds involves multiple steps and allocates funds to several purposes, before ultimately reaching the states to support crime victim services.
Once the funds have gone through every step in the above chart, the very last step is awarding 47.5% of the remaining balance in grants to states. This is not the only way these dollars can go to states to support victim services — shelters also get funding through other federal agencies and grants — but the dollars awarded through the victim assistance formula grants are the most direct and most flexible. In California, the money goes to the California Governor’s Office of Emergency Services, who administers the funding to eligible organizations that provide direct services to survivors.
Federal Funding Levels are Inconsistent, Causing Challenges for Survivor Service Providers
Unfortunately, while this funding is necessary to provide crucial support to survivors, it is currently insufficient due to federal funding cuts. Since 2019, funding has fallen far short of levels needed to maintain the services local organizations provide to more than 816,000 victims of crime in California. While the state stepped in and provided $103 million in one-time funding to backfill federal VOCA funding gaps in 2024, no funding was provided in the governor’s 2025-26 proposed budget even though cuts are expected at the federal level again. At the current funding level, programs will have experienced a 67% cut in funding since 2019.
Due to changes in the amount Congress decides to allocate each year to be released from the fund and large fluctuations in the amount collected in federal fines and fees, funding for survivors is precarious. As shown in the chart below, there have been large swings in the amount in the Crime Victims Fund, such as in 2017 when there was a $4.3 billion settlement from Volkswagen that led to a massive increase in the amount of funding sent to California the following year. These swings in funding levels have largely been due to unexpectedly large criminal fines and settlements, which can change drastically from year to year and create instability so programs cannot count on consistent funding to provide the critical services necessary for survivors.
What Are the Current Threats to This Funding?
While the dollars in the Crime Victims Fund come from criminal fines and fees, they are unfortunately still under threat by the proposed unconstitutional federal funding freeze by President Trump. The funding freeze is currently on pause and facing legal challenges, but if it were to go forward, the administration could pursue several potential actions that would harm survivors and service providers by:
Putting new grant conditions on the funds programs receive to limit who can be served or what services are prioritized;
Working with Congress to reduce or zero out how much is released from the fund each year; or
Using VOCA funding release to fund programs that do not support survivors or victims of crime.
How can state and federal policymakers better support survivors?
Programs that support survivors can be better resourced in two ways:
State-Level: The state can help fill the gaps left by the federal government cutting VOCA funding to ensure that every Californian can feel safe. Ongoing, stable funding is crucial for service providers to be able to best support survivors.
Federal-Level: Ensure that the funding freeze does not resume and do not continue to make cuts to VOCA funding. Proposed and planned federal budget cuts threaten the ability of domestic and sexual violence service providers to care for survivors, which puts the health and well-being of millions of Californians at risk in favor of tax cuts for corporations and the wealthy. Instead, Congress should appropriate adequate funding to be released each year from the fund in order for service providers to maintain and grow their critical programs.
SACRAMENTO, CA — A new report from the California Budget & Policy Center (Budget Center) highlights the persistent wage gap affecting Black women and Black single mothers in California. The report, authored by Hannah Orbach-Mandel, Laura Pryor, and Nishi Nair in collaboration with Kellie Todd Griffin from California Black Women’s Collective Empowerment Institute, highlights how … Continued
Women in California deserve the opportunity to thrive and access the same economic opportunities as their male counterparts. When women thrive, their families and communities prosper. However, women in California continuously encounter structural barriers that prevent them from doing so. Black women and Black single mothers in California, in particular, regularly confront policies rooted in racism and sexism that block them from accessing state funded programs and even stifle their earnings.
According to the latest Women’s Well-Being Index, Black women’s average wages are lower than white and Asian women and significantly lower than white men’s. This wage gap is persistent and closing at such a slow rate that wage equality will not be achieved in the lifetime of the youngest Californians. Additionally, in California, 67% of Black households are headed by single mothers. Consequently, Black single mothers face the additional financial burden of being the sole earners of their household and working while supporting their families, resulting in an even larger wage gap. While there has been progress in closing the wage gap, the state can implement policies that do much more to address the barriers to economic prosperity for Black women and Black single mothers in California.
About This Report
This report was co-authored with the California Black Women’s Collective Empowerment Institute. The Institute is dedicated to uplifting Black women and girls; CABWCEI fosters strategic partnerships, amplifies voices, and drives systemic change to eliminate barriers and advance social and economic equity across California.
As the anchor organization for the California Black Women’s Think Tank at CSU Dominguez Hills, CABWCEI works to strengthen representation, mobilize collective influence, and advocate for policies that secure social and economic safety nets.
What is the Gap in Earnings Between Black Women and White Men?
In California, Black women — and especially Black single mothers — are paid far less than white men both in earnings from their job and total income. Approximately 67% of Black households are headed by Black single mothers, and systemic inequalities and economic disparities present these women with a unique set of challenges. It is crucial to not only examine earnings (wages) for Black women overall, but also to focus specifically on the total income of Black single mothers. As shown in the proceeding chart, in 2022:
Black women were paid $54,000 in earnings and Black single moms were paid $50,000, compared to the nearly $90,000 white men earned.
Similarly, Black women made $60,000 in total income and Black single moms made $53,000, while white men made in total just over $90,000.
These findings mean that for every $1 a white man made in the state in 2022, a Black woman was paid only $0.60 and Black single moms were paid only $0.56. This gap suggests that given the cost of living in California, one job is not enough to make ends meet. As a result, many Black women are forced to work second jobs to try to make ends meet, and even then, they still face a large earnings gap to white men. This is even worse for Black single moms who are the primary breadwinners of their families.
The consequences of this systemic wage gap ripple far beyond paychecks. When a mother struggles to make enough, her entire family feels it. It means tougher choices about paying rent, putting food on the table, or saving for the future. It means limited access to safe housing, quality healthcare, and educational opportunities — not just for her, but for her children too. This kind of financial stress isn’t just a challenge for today; it’s a challenge for generations.
What Could Black Women Afford if They Were Paid Equally?
The wage and income gaps Black women face place heavy burdens on their ability to meet even their basic needs. If Black women were paid equal to white men, they would be better resourced to thrive. Consider a single Black working mom in California. She must manage her children’s drop-off and pick-up at both child care and elementary school, while working two jobs to try to make ends meet. If she had been paid what white men in the state were in 2022, as the following chart shows, she would be able to afford:
An additional 8 years of groceries;
An entire year of rent; or
Two years of child care.
If Black women were paid equal to white men, they could significantly improve their quality of life, generate more opportunities for their families, and better afford basic needs like housing, groceries, and diapers. Unfortunately, without proactive public policies, this will not be a reality for most women in the state today.
This is important because the wage and earnings gaps that Black women and single Black mothers face aren’t just numbers on a chart — they represent real struggles, real sacrifices, and real missed opportunities for Californians. These gaps place a heavy burden on their ability to meet even the most basic needs. This is about moms working long hours, stretching every dollar, and still being forced to make impossible choices about what they can afford for their families.
If The Status Quo Remains, How Long Will It Take To Close the Wage Gap?
Unfortunately, this wage gap is far from being closed. Specifically, it will take until the year 2121 — or nearly 100 years — for this gap to close. At this rate, equal pay will not be a reality for the majority of Black women in the state in their lifetimes.
Why Do Black Women in California Continue to Face a Wage Gap?
The wage gap for Black women and more specifically, Black single mothers, reflects decades of systemic racism and sexism. These injustices not only highlight the exploitation and implicit bias Black women experience, but also shed light on how policies have not done enough to support closing the wage gap. While multiple factors underscore the wage gap for Black women, the following are salient contributors.
Black women are overrepresented in jobs that pay low wages and do not provide upward mobility.
This is most pronounced in the caregiving industry in which wages have historically been low. Specifically, Black women comprise nearly 30% of all home health care workers despite only being 6% of the total US labor force. Legislation to invest in care workers, raise their wages, and remove obstacles to unionization continues to be deprioritized, resulting in stagnation for the workforce and lack of opportunity for Black women to advance.
Black women continue to face a “glass ceiling,” limiting their promotion to leadership roles with higher wages.
Namely, Black women’s career advancement remains the furthest behind. In 2023, only 54 Black women were promoted for every 100 men, which was the lowest among all women. This glass ceiling highlights the compounding effects of racism and sexism Black women experience in the workplace that prevents them from progressing in their careers.
Black women’s unpaid caregiving negatively impacts their career advancement and economic security.
For example, health disparities for Black Californians result in many Black women leaving the workforce to care for their families and children. This unpaid caregiving work means that Black women have less opportunity to contribute to Social Security or company-sponsored retirement systems, are more likely to live in poverty, and have fewer resources in older age.
The high cost of child care and inadequate paid family leave exacerbate the Black women’s wage gap.
Without access to a state subsidy, a Black single mother in California with an infant and a school-age child spends, on average, 67% of her income on child care. For many Black women, this cost is prohibitive and results in leaving the workforce or making a major job change. Strikingly, since the COVID-19 pandemic, Black women and men are about twice as likely as their white peers to report that they are unable to look for work due to child care and other family responsibilities. Moreover, while California has made great progress in improving its Paid Family Leave program, there are still opportunities for improvement to ensure that Black women’s employment opportunities are not disrupted due to caregiving.
Policy Recommendations for Black Women and Single Black Mothers in California: Closing the Economic Gap
To address the pay gap and improve the economic well-being of Black women and single Black mothers in California, the state can implement targeted, localized policies to address systemic barriers and create equitable opportunities. Here are key California-specific policy recommendations:
Strengthen Pay Transparency and Equity Laws
What It Does: Enhance existing California Transparency Pay Act requirements that mandate employers to disclose salary ranges in all job postings and ensure transparency in promotions. This could be done by reducing the business size threshold so the requirements apply to all businesses with at least five employees instead of the current 15-employee threshold.
Why It Matters: This would reduce wage discrimination for Black women and single Black mothers and empower them to negotiate fair and just compensation in the state’s competitive job market.
Increase Access to Affordable Child Care Programs
What It Does: Expand California’s subsidized child care program and simplify eligibility requirements for single mothers. Boost funding to support higher wages for child care providers to address workforce shortages.
Why It Matters: High child care costs are a major burden for single Black mothers in California, and affordable child care would free up resources for other essentials.
Support Workforce Development for High-Growth and Non-Traditional Industries
What It Does: Expand California’s workforce development programs to include targeted support for Black women and single Black mothers in public, nontraditional and emerging and high-demand industries like tech, health care, and green energy.
Why It Matters: Equipping single Black mothers with the skills needed for better-paying jobs would help close the income gap and provide long-term economic stability.
Promote Leadership Development for Black Women
What It Does: Fund leadership programs that equip Black women with skills and mentorship opportunities for advancement in corporate, nonprofit, and public sectors.
Why It Matters: Leadership development addresses underrepresentation of Black women in executive, people-leading, and decision-making roles — opening doors to higher earnings and influence.
Invest in Affordable Housing Initiatives
What It Does: Increase funding for programs like CalHome to create products (i.e. down payment grants, mortgage forbearance programs, and Accessory Dwelling Unit (ADU) construction grants) that help mitigate the issues that single-income earners face. Provide rental assistance programs specifically for single mothers.
Why It Matters: The cost of housing in California is among the highest in the nation. Affordable housing would alleviate one of the largest financial burdens Black women and single Black mothers face.
Implement a Family Choice-Centered Approach to Universal Pre-K and Early Education Supports
What It Does: Ensure the California State Preschool Program (CSPP) is accessible and meets the needs of all low-income families, including single Black mothers, and expand funding to maximize family choice across all early learning and care programs.
Why It Matters: Early education allows single mothers to pursue work or education while providing their children with a strong academic foundation at an early learning setting preferred by them.
Increase Minimum Wage to Reflect Regional Costs of Living
What It Does: Introduce region-specific minimum wages that account for the cost of living in high-cost areas like Los Angeles, San Francisco, and San Diego.
Why It Matters: Black women and single Black mothers working minimum-wage jobs in California’s urban centers often struggle to cover basic expenses due to the high cost of living.
Promote Equity in Hiring and Advancement
What It Does: Require California employers to establish belonging and representation plans that focus on hiring and promoting Black women into leadership roles. Provide state tax incentives for companies that meet belonging and representation goals.
Why It Matters: Addressing systemic discrimination in hiring and promotions would open pathways to higher-paying positions for women and people of color.
Strengthen Protections Against Workplace Discrimination
What It Does: Enhance enforcement of California’s anti-discrimination laws with specific measures to address racial and gender bias. Include protections against discrimination in hiring, pay, and promotions. Establish guidelines for the enforcement of the Creating a Respectful and Open World for Natural Hair (CROWN) Act.
Why It Matters: Discrimination limits Black women’s access to fair pay and opportunities for advancement. Robust protections create more equitable workplaces.
what is the crown act?
A law that prohibits race-based hair discrimination, defined as the denial of employment and educational opportunities because of hair texture or protective hairstyles.
Create a Statewide Task Force for Black Women’s Economic Equity
What It Does: Establish a task force under the California Department of Business and Economic Development to focus on developing recommendations to close the pay gap, wealth gap, support entrepreneurship, and advance workforce equity for Black women.
Why It Matters: A dedicated task force would ensure ongoing focus, data collection, and accountability on issues impacting Black women’s economic well-being.
When Black women are paid fairly, they don’t just lift themselves up. They lift up their families, their communities, and our entire state. California can’t afford to leave anyone behind, especially the women who are working hard to build better futures for all of us. It’s time to close these discriminatory pay gaps and ensure every woman — every mom — gets the respect, the resources, and the pay she deserves.
Kellie Todd Griffin is the founding president and CEO of the California Black Women's Collective Empowerment Institute.
Support for this piece was provided by the California Commission on the Status of Women and Girls.
SACRAMENTO, CA — A new report released today reveals that California holds the nation’s worst wage gap between Latinas and white men, highlighting the ongoing economic injustice faced by Latinas in the state. On Latina Equal Pay Day — the day symbolizing how far into the year Latinas must work to match the previous year’s … Continued
This year, Latina Equal Pay Day — marked on a date symbolizing how far into the year Latinx women must work to earn what white men earned the previous year — serves as a stark reminder of the economic inequities Latinas continue to face. Despite California’s progressive track record, it holds the troubling distinction of … Continued
key takeaway
The wage gap for Latinas in California remains alarmingly wide. Systemic barriers in education, employment, and caregiving responsibilities contribute to persistent inequality.
When women thrive, their families and communities prosper. Despite decades of progress in job opportunities and earnings, working families still struggle to afford basic needs. This challenge is significantly worse for women, and specifically, Latinas. Systemic racism and gender inequities have contributed to California being the state in the nation with the worst wage gap between Latinas and white men.
In California, Latinas make 44 cents to every dollar that a white man earns. This wage gap is pervasive and persistent, with Latinas being paid less than white men in every state. If the current California wage gap trend continues, Latinas will not reach the same wages as white men within the lifetime of the state’s youngest children. While California has made progress toward creating the conditions for removing the structural barriers resulting in this wage gap, state leaders can do far more to ensure that Latinas no longer face this staggering inequity.
How Long Will it Take for Latinas to Close the Wage Gap — A Staggering 130 Years?
The data show that the wage gap will persist for generations to come, specifically:
It will take until the year 2153 for Latinas to close the wage gap.
The average gap between Latinas and white men’s median earnings from 2003-2022 was about $48,742. This wide gap indicates that Latinas will not see wage equality during their lifetime.
Latinas’ wages are growing, just not fast enough.
Latinas’ wages are growing at a rate that is two times faster than white men’s. Even at this doubled speed, though, it will still take about 130 years for Latinas’ wages to equalize with white men’s.
The California Women’s Well-Being Index
When women thrive, communities flourish. The Women's Well-Being Index reveals the challenges women — especially women of color — face in economic security, health care, safety, and political representation. It calls on all of us to act for a more inclusive California.
Explore how women’s well-being impacts us all and discover the steps we can take to create lasting change.
Latinas are more likely to work in unstable job markets, making them highly vulnerable to wage instability.
Latinas faced some of the worst unemployment spikes during COVID-19 and are recovering much slower than other racial and ethnic groups. In addition, female dominated industries faced the largest cuts during the pandemic and women of color are struggling the most to fight their way back into the labor force.
Latinas work in sectors that are traditionally unpaid, widening the already inequitable wage gap.
Women spend more of their time participating in unpaid care than men, which reinforces gendered and racial divides in labor and wages. Specifically, Latinas compose the majority of those who provide unpaid care, further driving down their wages relative to women of other racial and ethnic groups. The lack of policies surrounding unpaid labor and caregiving leave Latinas especially vulnerable to workplace discrimination and lower earnings.
Latinas face gender and racial discrimination in multiple areas vital to well-being.
In addition to the largest wage gap, according to the 2024 Women’s Well-Being Index, Latinas also have the highest percentage of women in low-wage occupations, the lowest proportion of women in managerial and professional occupations, and the lowest proportion of women with a bachelor’s degree. Even though California has a more recent history of progressivity, Latinas in the state continue to face barriers to education, workplaces free from discrimination, and access to the resources necessary for a fruitful existence.
Latinas are disproportionately impacted by wage discrimination as undocumented women are the least paid of any major demographic group.
California has the largest undocumented population and Latinas make up the majority of undocumented women. Of all undocumented women in California, 69% are Latinas. In California, undocumented immigrants contributed $8.5 billion in state and local taxes in 2022. Despite this contribution to communities across the state, systemic barriers have resulted in ongoing wage inequities for this population.
What Can Policymakers Do to Address the Wage Gap for California’s Latinas?
In recent years, California’s policymakers have passed legislation that helps to identify and address the disparities in wages between Latinas and white men. This legislation includes:
California Equal Pay Act. Passed in 2016, this policy requires equal pay for employees who perform similar work.
California Pay Data Reporting Law. Passed in 2020, this policy requires private employers to submit annual reports of employees’ gender, race, ethnicity, pay, and hours worked to the California Civil Rights Department.
California Pay Transparency Act. Passed in 2022, this policy expands pay data reporting requirements to better identify gender and race-based pay disparities.
While these policies have promoted fairer conditions for pay equity, they have not been enough to meaningfully close the wage gap in California between Latinas and white men. The reasons behind this wage gap in California stem from a variety of structural barriers related to access to well-paying jobs, access to education, and racial and gender discrimination. Pay transparency and reporting requirements alone will not meaningfully address this issue. Policymakers must therefore take a multifaceted approach to addressing systemic barriers by fighting against persistent inequities in pay and benefits and strengthening supports such as:
Continuing to raise wages in occupations where Latinas are disproportionately represented;
Widening access to flexible and affordable child care to aid in alleviating poverty;
Increasing workers’ collective bargaining power;
Investing in community-based programs supporting Latinas; and
Promoting programs that improve the leadership pipeline for Latinas.
Focused efforts to address the wage gap can reverse current trends to ensure that Latinas reach pay equity well within a lifetime and have the resources they need to thrive in California.
Support for this piece was provided by the California Commission on the Status of Women and Girls.
California’s Unemployment Insurance (UI) system is severely underfunded and outdated, leaving workers with inadequate benefits and excluding millions. To revitalize UI and ensure it supports both workers and the economy, the state must raise the taxable wage base and reform its financing structure to eliminate the $19.8 billion debt and stabilize the system for future economic downturns.
When Californians are out of work, unemployment insurance (UI) should help them make the rent, put food on the table, and cover other basic needs until they can find a new job. During the worst days of the pandemic, millions of jobless workers across the state relied on UI benefits to make ends meet, supporting both their families and California’s economy until it could thrive again. UI is also critical for jobless workers during periods of economic growth: In May 2024, 379,955 California workers — laid off from industries including manufacturing and information — counted on UI as they sought new employment.1Employment Development Department, California Employers Gained 43,700 Nonfarm Payroll Jobs in May 2024, accessed June 21, 2024, https://edd.ca.gov/en/about_edd/news_releases_and_announcements/unemployment-may-2024/.
Yet without the federal supplements that were available during the pandemic downturn, California workers received an average UI benefit of just $368.53 a week in 2023, less than the income needed to afford fair market rent in any county in the state.2Average benefit amount based on US Department of Labor Employment and Training Administration, Unemployment Insurance Data,https://oui.doleta.gov/unemploy/data_summary/DataSum.asp; housing affordability based on National Low Income Housing Coalition, Out of Reach: The High Cost of Housing, 2023, https://nlihc.org/sites/default/files/oor/California_2023_OOR.pdf using an affordability standard of 30% of income for rent. At the same time, millions of California workers, including more than a million immigrant workers, are excluded from accessing unemployment insurance entirely.3Legislative Analyst’s Office, Extending Unemployment Insurance to Cover Excluded Workers, (March 28, 2023), https://lao.ca.gov/handouts/state_admin/2023/Unemployment-Insurance-032823.pdf.
To strengthen and expand UI to adequately support workers and the economy, California must address the severe and chronic underfunding of the UI trust fund, which has created a structural deficit and $19.8 billion in debt for the state’s UI system. The underlying problem is California’s deficient UI financing: For decades policymakers have not required businesses to cover the true cost of the unemployment benefits their workers need. Instead, the state taxes employers on only the first $7,000 of each employee’s pay, a dramatically lower wage base than most other states.
This report details how workers, employers, and the economy as a whole are paying a steep price for California’s inadequate UI financing system. It explores how both raising the taxable wage base and changing the state’s experience rating system will be necessary to strengthen and stabilize UI to better serve workers, employers, and the economy.
Unemployment Insurance is a Lifeline for California, But Low Benefits and Exclusions Undermine Its Effectiveness
The joint federal-state UI system was established in the wake of the Great Depression to protect workers and their families against the loss of employment income, to bolster the economy during economic downturns by supporting consumer demand, and to ensure jobseekers are not forced into substandard jobs that could broadly depress wages and degrade working conditions.
Today, economists recognize that UI also plays an important role in improving job matches, enhancing the overall functioning of the labor market, and helping employers match with workers who have the right skills, improving their efficiency.4Ammar Farooq, Adriana D. Kugler, and Umberto Muratori, “Do Unemployment Insurance Benefits Improve Match Quality? Evidence From Recent US Recessions,” National Bureau of Economic Research (2020), https://www.nber.org/system/files/working_papers/w27574/revisions/w27574.rev0.pdf. By giving workers time to match with more suitable jobs, UI also contributes to higher wages and greater job satisfaction when they find new work.5Nick Gwyn, State Cuts Continue to Unravel Basic Support for Unemployed Workers (Center on Budget and Policy Priorities, June 27, 2022), https://www.cbpp.org/research/state-budget-and-tax/state-cuts-continue-to-unravel-basic-support-for-unemployed-workers; Adriana D. Kugler, Umberto Muratori, and Ammar Farooq, The Impacts of Unemployment Benefits on Job Match Quality and Labour Market Functioning (Centre for Economic Policy Research, February 7, 2021), https://cepr.org/voxeu/columns/impacts-unemployment-benefits-job-match-quality-and-labour-market-functioning. Yet UI’s ability to fulfill any of these functions is weakened by California policymakers’ failure to raise the state’s low benefit levels or to include the significant numbers of workers who are locked out of the system entirely.
Unemployment benefits remain critical to workers who receive them. In 2022, UI prevented more than 400,000 people nationwide, including 116,000 children, from experiencing poverty.6Amy Traub, Unemployment Insurance Had Less Capacity to Cut Poverty in 2022 (National Employment Law Project, 2023), https://www.nelp.org/insights-research/unemployment-insurance-had-less-capacity-to-cut-poverty-in-2022/. Even for workers not facing poverty, receiving unemployment benefits reduces hardship and broadly improves the well-being of households, including recipients’ financial stability and mental health.7Patrick Carey, et al., “Applying for and Receiving Unemployment Insurance Benefits During the Coronavirus Pandemic,” Monthly Labor Review, US Bureau of Labor Statistics, September 2021, https://doi.org/10.21916/mlr.2021.19.
Yet benefits in California have not been raised in nearly two decades. With an average benefit of just $368.53 a week in 20238US Department of Labor, Employment and Training Administration, Unemployment Insurance Data,https://oui.doleta.gov/unemploy/data_summary/DataSum.asp., UI benefits no longer provide enough money for Californians — particularly those with low incomes — to meet the rising cost of living while seeking employment. As the California Budget & Policy Center pointed out earlier this year, a worker who loses a full-time minimum wage job (at $16.90-per-hour in Los Angeles County) receives just $1,465 in monthly unemployment benefits, which falls $69 short of covering rent for a studio in Los Angeles priced at Fair Market Rent.9Alissa Anderson and Hannah Orbach-Mandel, California Should Increase Unemployment Benefits to Help Workers Meet Basic Needs (California Budget & Policy Center, January 2024), https://calbudgetcenter.org/resources/california-should-increase-unemployment-benefits-to-help-workers-meet-basic-needs/ California’s UI benefits are significantly lower than other Western states, including Washington ($703.79 per week on average), Oregon ($543.81 per week), Nevada ($450.70 per week), and Hawaii ($613.30 per week), as shown in the figure below. California’s low benefits are even more striking considering the state’s higher cost of living.
At just $40 per week, California’s minimum UI benefit — the payment provided to workers who earned the lowest wages before becoming unemployed — is also among the nation’s lowest, falling below the minimum benefits provided by 29 other states. For example, Washington’s minimum benefit is seven times greater than California’s ($295 per week), while Arizona’s minimum benefit is $200 per week, and Oregon’s is $171. In addition, 12 states offer dependent allowances, providing a weekly supplement to UI benefits so that workers with children and other dependents have an additional resource to make ends meet. Despite its low average and minimum benefits, California offers no additional support to unemployed parents and other workers supporting dependents.
Low Unemployment Insurance Benefits Exacerbate Racial and Gender Inequities
Low UI benefits can be especially harmful for workers of color, including American Indian, Black, Latinx, and Pacific Islander Californians — particularly women — who are overrepresented in low-paying jobs due to structural racism and sexism.10Jasmine Tucker and Julie Vogtman, When Hard Work Is Not Enough: Women in Low-Paid Jobs (National Women’s Law Center, April 2020), https://nwlc.org/wp-content/uploads/2020/04/Women-in-Low-Paid-Jobs-report_pp04-FINAL-4.2.pdf. Since benefit levels are based on prior wages, low-paid workers tend to receive lower UI benefits. Yet workers who lived paycheck-to-paycheck when they were employed face even greater hardship in trying to cover their expenses on benefits that are a small fraction of their paycheck. At the same time, workers of color typically have fewer financial resources other than UI benefits to draw on during unemployment compared to white workers, as a result of systematic exclusion from wealth-building opportunities over generations.11Angela Hanks, Danyelle Solomon, and Christian E. Weller, Systemic Inequality (Center for American Progress, February 21, 2018), https://www.americanprogress.org/article/systematic-inequality/.
California’s low benefit levels also undercut UI’s ability to fight recessions. This is particularly troubling because a strong UI system is among the most effective tools available to promote economic recovery: According to the International Monetary Fund, each dollar paid in UI benefits during the pandemic generated $1.92 of economic growth as workers and their families were able to continue spending on basic necessities.12Klaus-Peter Hellwig, Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from US Counties (International Monetary Fund, 2021), https://www.imf.org/en/Publications/WP/Issues/2021/03/12/Supply-and-Demand-Effects-of-Unemployment-Insurance-Benefit-Extensions-Evidence-from-U-S-50112. This powerful impact was achieved because the federal government expanded UI benefits during the pandemic: A $600 a week supplement to regular state UI benefits early in the pandemic (later $300 a week) ensured that unemployed workers could keep spending money, supporting local businesses across the state. The expanded federal benefits also ensured that California jobseekers and their families were able to meet expenses far better than they could by relying solely on the state’s regular UI benefits.
Federal pandemic programs also expanded eligibility for UI benefits to self-employed workers, caregivers, misclassified independent contractors, part-time workers, and many underpaid workers who are typically shut out of California’s regular UI system. By expanding the share of unemployed workers who received support, federal pandemic programs further improved the ability of UI to stabilize the economy.
More than 1 million undocumented workers, who represent over 6% of California's workforce, were, notably, not included in the UI benefit expansions.13University of California Merced Community and Labor Center, Worker Relief: Expanding the Safety Net to Excluded Workers, April 2023, https://clc.ucmerced.edu/sites/clc.ucmerced.edu/files/page/documents/worker_relief_2022_2.pdf. California instituted a Disaster Relief Assistance for Immigrants (DRAI) program to provide limited, one-time financial assistance to unemployed immigrants who were not otherwise eligible for UI benefits. However, the amount of support was grossly inadequate to meet immigrant workers’ needs and fell far short of what other Californians received, with researchers finding that unemployed citizen workers in California were eligible for up to 20 times more aid than the state’s undocumented workers in the first year of the pandemic.14University of California Merced Community and Labor Center, Essential Fairness: The Case for Unemployment Benefits for California’s Undocumented Immigrant Workers, March 2022, https://clc.ucmerced.edu/sites/clc.ucmerced.edu/files/page/documents/essential_fairness.pdf.
Workers who are on strike are also excluded from UI benefits, even though they miss paychecks and risk hardship for exercising their right to collective action. California should consider expanding UI benefits to striking workers, as New York and New Jersey already do.
Now both federal and state emergency programs have expired, and Californians are left with a UI system that does not adequately support jobseekers and still excludes many of them. California’s UI system is not prepared for the next unexpected economic shock or crisis. At a moment when policymakers are increasingly worried that the use of artificial intelligence could push large numbers of workers out of a job, a strong UI system is needed more than ever to support Californians who could be displaced.
A Strong and Effective UI System Requires Adequate Financing: California Needs Major Reforms
Unemployment insurance is funded by state and federal payroll taxes. In general terms, the Federal Unemployment Tax Act (FUTA) funds UI administrative costs and certain special programs, while the State Unemployment Tax Act (SUTA) tax, imposed by states, pays for UI benefits and is used to repay any federal loans made to the state’s UI trust fund (more on this below). SUTA tax revenues are deposited into a trust fund held for each state by the US Treasury.
State unemployment insurance benefits are paid out of each state’s trust fund. If states don’t have sufficient money in the trust fund to pay UI benefits, they can take out a federal loan. That’s what California and 21 other states did as they struggled to pay out benefits to tens of millions of laid off workers in the early days of the COVID-19 pandemic.15US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2021, March 2021,https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2021.pdf. Although the federal government fully paid for expanded UI benefits during the pandemic economic crisis, California still faced a record $35 billion in costs for regular UI benefits. The state is still paying back those costs today, and currently faces a trust fund debt of $19.8 billion.16US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2024, March 2024, https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2024.pdf.
Yet the extraordinary costs of the pandemic are only the latest and most dramatic manifestation of an ongoing structural deficit in California’s UI financing system. In January 2020, before the pandemic triggered record job loss, California already had the most underfunded UI system of any state.17US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2020, March 2020, https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2020.pdf. Even today, with a relatively low unemployment rate hovering around 5%, California does not raise enough revenue to pay for current UI benefits, much less pay down its trust fund debt.
In addition to regular SUTA taxes, California employers are paying a 15% tax surcharge to pay back the trust fund loan, but this additional revenue is still not sufficient to reduce the principal. The state Employment Development Department projects that at the current rate of repayment, the outstanding federal UI loan balance will grow to nearly $22 billion in 2025.18Employment Development Department, May 2024 Unemployment Insurance (UI) Fund Forecast, May 2024, https://edd.ca.gov/siteassets/files/unemployment/pdf/edduiforecastmay24.pdf.
California must overhaul its UI revenue system to adequately support unemployed workers and the economy, pay down its debt, and build a reserve for future economic downturns.
Failing to Modernize UI Financing Costs All Californians
California’s underfunded UI system imposes steep costs across the state. As described above, job seekers face hardship as they struggle to get by on low UI benefits, even as many jobless workers are excluded. At the same time, meager benefits may not be enough to power the state’s economic recovery in the next downturn. Yet the costs are even more widespread: Because the interest on the trust fund debt has traditionally been paid out of the state’s general fund, all California residents will ultimately pay a price.
Due to rising interest rates, California owed $484 million in interest on UI debt in 2024 at a time when the state was facing a significant, multi-year budget shortfall. Although California was able to use internal borrowing to cover the interest payment due in 2023, there were fewer such options available in 2024 and the state’s final budget agreement covered most of the interest payment ($384 million) with General Fund dollars, taking significant resources away from other priorities. Looking ahead to future years, California will continue to owe interest every year that it maintains trust fund debt, and these payments will significantly reduce funding available to invest in other critical priorities, including health care, child care, affordable housing, and environmental protection.
And while employers may express concern about increased UI taxes in a modernized system, they also face a direct tax penalty if no action is taken: In addition to the surcharge to pay back the loan, California employers will also face a reduction in the Federal Unemployment Tax Act (FUTA) tax credit, effectively hiking their taxes as long as the trust fund debt continues to go unpaid.
Raising and Indexing the Taxable Wage Base Is Critical to Improving UI Financing
Failure to raise revenue is at the heart of California’s UI financing crisis. State policymakers have been reluctant to mandate that employers contribute the funds needed to finance a strong and effective UI system. As a result, California taxes employers on only the first $7,000 of each employee’s pay.
What Is the Taxable Wage Base and Why Is It Important for Understanding How Unemployment Insurance Benefits Are Funded?
State unemployment benefits are financed through state payroll taxes paid by employers. There are two basic factors that determine how much employers pay in those taxes: the tax rate and the taxable wage base. The tax rate is determined for each employer based on tax rate schedules outlined in state law. The rate for a particular employer is then applied to a taxable wage base equal to each of their employee’s first $7,000 in annual earnings to determine how much tax the employer owes.
For example, new employers are assigned a state payroll tax rate of 3.4%. If a new employer has three employees all earning $40,000 annually, the employer would calculate the payroll tax they owe by multiplying 3.4% by $7,000 for each employee ($238), for a total annual tax of $714 for all three employees. If the taxable wage base were higher, say $21,000, the same amount of revenue could be raised with a much lower tax rate (1.1%) because a greater proportion of each worker’s wages would be subject to taxation. Alternatively, by maintaining a 3.4% tax rate, the higher taxable wage base would raise three times as much revenue ($2,142 for all three employees).
When comparing state payroll taxes across states, it’s important to consider both the tax rate and the taxable wage base to which that rate is applied. A state with relatively high tax rates does not necessarily result in employers in that state paying more in taxes than states with lower tax rates. For example, a 5.7% rate would generate a tax of $400 if applied to a base of $7,000. But a much lower rate of 3.8% would generate twice as much tax ($800) if applied to a base of $21,000.
This low fixed amount, known as the taxable wage base, not only raises inadequate revenue but raises it inequitably. The low taxable wage base means that California taxes a higher proportion of the wages of low-paid workers and imposes the highest effective tax rates on small businesses while failing to keep up with wage growth and taxing a far smaller share of wages than most other states. Raising the taxable wage base and indexing it to the state’s average wages is essential to strengthen the UI system.
Wages have increased significantly over the last 40 years, yet California’s taxable wage base has remained fixed, lagging further and further behind. While the state’s taxable wage base of $7,000 was equivalent to full-time wages at the federal minimum wage in 1982, it was less than three months of full-time work at the minimum wage in 2022 in California. By 2022, California’s effective UI tax rate was less than half of what it had been in 1980, as the figure below illustrates.
California’s UI financing system disproportionately taxes the employers of low-paid and part-time workers because the state’s taxable wage base is so low. Take, for example, employers subject to a state UI tax rate of 3.1%, which is the average rate paid by employers in 2023. Since most workers earn more than the state’s taxable wage base of $7,000, employers effectively pay $217 in state UI taxes per worker. But this represents a much larger share of employers’ labor costs for low-paid and part-time workers. For instance, $7,000 amounts to 1.3% of the earnings paid to half-time minimum wage workers, compared to 0.7% of the earnings paid to full-time minimum wage workers and just 0.2% of the earnings of workers paid three times the minimum wage, as the figure below shows. Researchers find that this creates disincentives to hire part-time workers in the first place, leading to fewer employment opportunities, which would impact workers who benefit from the flexibility of part-time work or who rely on additional earnings to make ends meet.19Mark Duggan, Audrey Guo, and Andrew C. Johnston, Would Broadening the UI Tax Base Help Low-Income Workers? (IZA Institute for Labor Economics, January 2022), https://docs.iza.org/dp15020.pdf; Po-Chun Huang, “Employment Effects of the Unemployment Insurance Tax Base,” The Journal of Human Resources, 59, no.4(March 2022) https://doi.org/10.3368/jhr.0719-10316R2. Raising the taxable wage base would help to address these inequalities.
Small businesses also bear a disproportionate tax burden as a result of California’s low taxable wage base for UI.
Raising California’s taxable wage base is not a pie-in-the-sky idea. In fact, 94% of US states already have a higher taxable wage base than California, including Washington State with a taxable wage base of $68,500 in 2024, Oregon ($52,800), Nevada ($40,600) and Hawaii ($59,100).20US Department of Labor, Employment and Training Administration, Significant Provisions of State Unemployment Insurance Laws Effective January 2024, https://oui.doleta.gov/unemploy/content/sigpros/2020-2029/January2024.pdf. These states not only tax a much higher share of payrolls than California, but their wage base is indexed to the state’s average weekly wage so that it adjusts automatically each year as wages rise, providing far more reliable financing than California’s low fixed rate. As the figure below shows, businesses in California actually pay taxes on a smaller share of wages than any other state, with just 8% of average annual earnings taxed. California’s low, fixed taxable wage base leads it to raise far less UI revenue than the state needs.
California Must Shift to Forward Financing of UI Benefits and Reform Experience Rating
Raising and indexing California’s taxable wage base is essential to ensuring adequate UI financing, but that alone will not be sufficient to sustainably fund the system because of the structurally flawed mechanism that determines UI tax rates in California.
California has seven employer contribution rate schedules that operate to increase state UI tax rates when the balance of the state’s UI trust fund is low and to reduce rates when the trust fund has more funding.21Employment Development Department, California System of Experience Rating, DE 231Z Rev. 17, (6-22), https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de231z.pdf. This “pay-as-you-go” mechanism is meant to increase revenues at the moment they are needed, but it produces two perverse outcomes. First, by hiking tax rates during economic downturns (when more workers are claiming UI benefits and the trust fund balance falls), the system compels businesses to pay higher taxes during the most difficult economic times, when their own resources are most depleted. Raising business costs during recessions undermines the ability of UI to promote economic recovery. Second, by lowering tax rates as the trust fund balance begins to recover, this system makes raising additional revenue difficult. If California were to increase its taxable wage base without fixing the “pay-as-you-go” mechanism, employer tax rates would automatically fall as soon as the trust fund balance began to improve, making it more difficult to reach and maintain solvency.
The weakness of pay-as-you-go financing is evident with a look at California’s history: As the figure below indicates, the state failed to raise sufficient revenue to fund UI benefits in every recession since 1980.
The alternative to California’s pay-as-you-go financing mechanism is a forward-funded system designed to take in more revenue than it pays out during periods of low unemployment. Forward funding enables state UI systems to build up sufficient reserves during periods of economic growth to pay benefits during economic downturns, when large numbers of workers are laid off and seeking unemployment benefits. The US Department of Labor’s UI Trust Fund solvency standards are designed to encourage this type of forward funding.22US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2024, March 2024, https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2024.pdf. Numerous other states, including Oregon, use a forward-funding mechanism to put their UI systems on more stable financial footing.23State of Oregon Employment Department Oregon Employment Department Announces 2024 Rates for Paid Leave Oregon and Unemployment Insurance, November 2023, https://www.oregon.gov/employ/NewsAndMedia/Documents/2023-11-Tax-Contribution-Rate-Notice.pdf.
The mechanism for determining each individual employer’s UI tax rate is also flawed and needs to be reformed. In general, private employers are assigned a tax rate based on their experience with unemployment — that is, their history of laying off workers who then claim unemployment benefits.24New employers are initially assigned a rate of 3.4%, which is then adjusted after 2-3 years based on their experience rating. Additionally, public and nonprofit employers may choose to finance UI benefits on a dollar-for-dollar reimbursement basis instead of being subject to experience rating. Employment Development Department, California System of Experience Rating, DE 231Z Rev. 17 (6-22), https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de231z.pdf; Employment Development Department, 2024 California Employer’s Guide, DE 44 Rev. 50 (1-24), 9, https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de44.pdf. This system, known as “experience rating,” is required by the federal government, but states have considerable flexibility in selecting specific experience rating methods. In California, an employer’s experience rating is determined by a formula that takes into account their contributions into the trust fund and the UI benefits paid to their former workers.
There are two unintended consequences of this approach to experience rating. First, because employers’ contribution rate increases when their former employees claim UI benefits, employers have an incentive to discourage workers from applying for benefits, provide misinformation about eligibility, and dispute UI benefit claims. Second, this approach to experience rating makes raising the taxable wage base, on its own, a less effective strategy for improving UI financing. This is because increasing the taxable wage base would improve employers’ experience rating and automatically decrease their contribution rates (all else being equal), effectively limiting the amount of revenue that could be raised.
One potential alternative to this system is an experience rating system based on quarterly changes in the hours employees work for a given employer, regardless of whether these workers claim UI benefits.25Josh Bivens et al., Reforming Unemployment Insurance (Center for American Progress, Center for Popular Democracy, Economic Policy Institute, Groundwork Collaborative, National Employment Law Project, National Women’s Law Center, and Washington Center for Equitable Growth, June 2021), 36, https://files.epi.org/uploads/Reforming-Unemployment-Insurance.pdf. This would remove the incentive for employers to discourage or dispute benefit claims and would make increasing the taxable wage base more effective at shoring up the trust fund while supporting stronger benefits and broader eligibility.
Additionally, California could explore adopting this alternative experience rating system in combination with a method of assigning employer tax rates based on desired revenue targets, which researchers find is a highly effective strategy for improving UI financing.26A comprehensive analysis of state UI financing systems prepared by the Urban Institute for the US Department of Labor concluded that this approach, called “array allocation,” in combination with indexing the taxable wage base to wage growth were two key factors supporting UI trust fund adequacy. The analysis also suggested that states using array allocation have more stability in tax rates from year to year, leading to more predictability for both employers and the UI trust fund. Wayne Vroman et al., A Comparative Analysis of Unemployment Insurance Financing Methods (Urban Institute, December 2017), xv, 20, 42-43, 46, https://www.dol.gov/sites/dolgov/files/OASP/legacy/files/A-Comparative-Analysis-of-Unemployment-Insurance-Financing-Methods-Final-Report.pdf. Finally, California should consider how app corporations like Uber, Lyft, and DoorDash, which use technology to set and control working conditions, short-change California’s UI system by misclassifying employees as independent contractors, circumventing traditional labor laws and taxes. A study from the UC Berkeley Labor Center finds thatIf Uber and Lyft had treated workers as employees, these two corporations alone would have paid $413 million into the state’s UI trust fund between 2014 and 2019.27Ken Jacobs and Michael Reich, What Would Uber and Lyft Owe to the State Unemployment Insurance Fund? (Institute of Research on Labor and Employment, University of California, Berkeley, May 2020), https://laborcenter.berkeley.edu/pdf/2020/What-would-Uber-and-Lyft-owe-to-the-State-Unemployment-Insurance-Fund.pdf.
Conclusion
California’s UI system is a critical piece of social infrastructure and could become an engine of economic dynamism for the state, enabling workers, employers, and the economy to thrive. To achieve this vision, policymakers must stabilize the state’s UI finances by raising the taxable wage base and shifting to a forward-financing mechanism, providing the revenue needed to support California jobseekers with adequate benefits and expand assistance to workers who are currently shut out of the system.
Patrick Carey, et al., “Applying for and Receiving Unemployment Insurance Benefits During the Coronavirus Pandemic,” Monthly Labor Review, US Bureau of Labor Statistics, September 2021, https://doi.org/10.21916/mlr.2021.19.
Mark Duggan, Audrey Guo, and Andrew C. Johnston, Would Broadening the UI Tax Base Help Low-Income Workers? (IZA Institute for Labor Economics, January 2022), https://docs.iza.org/dp15020.pdf; Po-Chun Huang, “Employment Effects of the Unemployment Insurance Tax Base,” The Journal of Human Resources, 59, no.4(March 2022) https://doi.org/10.3368/jhr.0719-10316R2.
State of Oregon Employment Department Oregon Employment Department Announces 2024 Rates for Paid Leave Oregon and Unemployment Insurance, November 2023, https://www.oregon.gov/employ/NewsAndMedia/Documents/2023-11-Tax-Contribution-Rate-Notice.pdf.
24
New employers are initially assigned a rate of 3.4%, which is then adjusted after 2-3 years based on their experience rating. Additionally, public and nonprofit employers may choose to finance UI benefits on a dollar-for-dollar reimbursement basis instead of being subject to experience rating. Employment Development Department, California System of Experience Rating, DE 231Z Rev. 17 (6-22), https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de231z.pdf; Employment Development Department, 2024 California Employer’s Guide, DE 44 Rev. 50 (1-24), 9, https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de44.pdf.
25
Josh Bivens et al., Reforming Unemployment Insurance (Center for American Progress, Center for Popular Democracy, Economic Policy Institute, Groundwork Collaborative, National Employment Law Project, National Women’s Law Center, and Washington Center for Equitable Growth, June 2021), 36, https://files.epi.org/uploads/Reforming-Unemployment-Insurance.pdf.
26
A comprehensive analysis of state UI financing systems prepared by the Urban Institute for the US Department of Labor concluded that this approach, called “array allocation,” in combination with indexing the taxable wage base to wage growth were two key factors supporting UI trust fund adequacy. The analysis also suggested that states using array allocation have more stability in tax rates from year to year, leading to more predictability for both employers and the UI trust fund. Wayne Vroman et al., A Comparative Analysis of Unemployment Insurance Financing Methods (Urban Institute, December 2017), xv, 20, 42-43, 46, https://www.dol.gov/sites/dolgov/files/OASP/legacy/files/A-Comparative-Analysis-of-Unemployment-Insurance-Financing-Methods-Final-Report.pdf.
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