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Fact Sheet

Medi-Cal Coverage Loss Stings Californians: Paperwork Challenges Persist

April 2024 | By Adriana Ramos-Yamamoto and Monica Saucedo

A sweet little African boy sits up on the exam table at the doctors, as his male doctor listens to his chest with his stethoscope. The the little boy is dressed causally and is giggling at the doctor. The doctor has a white lab coat on and is smiling back at the young boy.

key takeaway

Despite being eligible, many Californians lose vital Medi-Cal coverage due to complex paperwork and difficulty reaching county offices. Streamlining the renewal process and improving accessibility are crucial to ensure everyone keeps the health insurance they need.

Continuous access to health care is necessary for everyone to be healthy and thrive. Unfortunately, paperwork challenges often prevent people from obtaining and maintaining health coverage. A clear example of this: Too many individuals continue to be disenrolled from Medi-Cal, California’s Medicaid program, due to paperwork challenges.

Last year, California began processing Medi-Cal renewals for the first time since the start of the pandemic. As a result, over 1.4 million Californians have lost Medi-Cal coverage from June 2023 to February 2024. About 9 in 10 Californians (87.4%) who lost Medi-Cal coverage during this period did so because they did not complete the renewal paperwork or had incorrect or missing information in their forms.

Completing the renewal process often involves complex paperwork and documentation requirements, which can be difficult to navigate. Additionally, many Californians have experienced extended call wait times when attempting to contact county Medi-Cal workers regarding their application.

Certain groups, including older adults and people with disabilities, are at greater risk of losing Medi-Cal coverage during the unwinding period.1Jennifer Tolbert and Meghana Ammula, 10 Things to Know About the Unwinding of the Medicaid Continuous Enrollment Provision (Kaiser Family Foundation, June 2023). Immigrants and their family members face unique obstacles in remaining covered, such as language barriers, privacy concerns, and fear of immigration-related consequences. Many Californians who are losing Medi-Cal coverage due to paperwork challenges may still meet the eligibility criteria.2Of the redeterminations that were received and processed in February 2024, about 9% were ineligible. See California Department of Health Care Services, Medi-Cal Continuous Coverage Unwinding Dashboard (February 2024), 14.

The high disenrollment rate due to paperwork challenges underscores the need to further streamline the renewal process and alleviate the paperwork burden on beneficiaries during the unwinding period and beyond. Addressing these challenges is essential to ensure that those who are eligible for Medi-Cal continue to receive vital health coverage.

While state leaders have implemented measures to reduce barriers to accessing and maintaining Medi-Cal coverage, they can take additional steps to prevent Californians who remain eligible for Medi-Cal from losing coverage. These include:

By taking additional action, state leaders can reduce barriers and ensure that all Californians, regardless of race, age, disability, or immigration status, can access and maintain the critical health coverage they need to be healthy and thrive.

Health & Safety Net

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key takeaway

California’s CalWORKs program, while crucial for low-income families with children, penalizes them financially for not meeting work requirements. This is counterproductive as sanctioned families often face the most barriers to employment.

The California Work Opportunity and Responsibility to Kids (CalWORKs) program is a critical component of California’s safety net for families with low incomes. The program helps over 650,000 children and their families, who are predominantly people of color, with modest cash grants, employment assistance, and critical supportive services. However, the program has a problematic history of prioritizing work over family well-being, exemplified by financial penalties against families and counties that don’t meet narrowly defined performance indicators.

For many families, receiving cash assistance is conditional on engaging in employment or other specified “welfare-to-work” activities intended to lead to employment, such as on-the-job training or unpaid work experience. Additionally, families must navigate through various other paperwork-related stipulations, which further exacerbate the barriers to accessing the much-needed aid. Families who do not comply with all the requirements set forth by the state can be subject to a financial sanction that reduces their monthly cash grant.

California’s sanction policy is harsher than what is required by the federal government. The punitive approach to this safety net cash assistance is counterproductive. Research shows that sanctioned recipients are often those who face the most barriers to employment, such as limited education, learning disabilities, limited work history, physical and mental health problems, and a history of domestic violence.1Rachel Kirzner, TANF Sanctions: Their Impact on Earnings, Employment, and Health (Center for Hunger-Free Communities, Drexel University, March 23, 2015). These participants are often not aware of the financial penalties or cannot fully navigate the overly burdensome processes due to limited resources and information.

As states across the country are learning that harsh sanctions do not directly lead to gainful employment and family stability, many have reduced the amount by which cash grants are cut, recognizing that pushing families deeper into poverty only further jeopardizes their well-being. California, which is often at the vanguard of providing cash and safety net support, is unfortunately trailing significantly behind.

How do CalWORKs sanctions impact California families?

CalWORKs families cannot afford to be sanctioned. These artificial barriers put families at risk of falling deeper into poverty. Briana, a Parent Voices California advocate, experienced this reality firsthand. As a mother of four living in Contra Costa County, Briana has been on and off of CalWORKs since the age of 17. Even though her CalWORKs case manager did not help her to utilize the full scope of CalWORKs services (i.e., child care, school tuition assistance), Briana received her certified nursing assistant certification (CNA) and achieved her goal of working in the medical field, which she did for several years. A CNA certification course at Contra Costa College is approximately $322 in fees and CNA students pay over $100 in books, costs that could have been covered by CalWORKs benefits and not paid through Briana’s cash aid.

Special thank you to Briana Burks and Parent Voices California for sharing their testimony from the March 20, 2024, Assembly Budget Subcommittee No. 2 on Human Services hearing, as highlighted in this section.

While experiencing postpartum depression following the births of her son and daughter, Briana went back on CalWORKs assistance to help make ends meet. During this time, Briana was sanctioned several times for reasons such as:

  • Not having an up-to-date immunization card;
  • Not having one of her children’s birth certificates on file; 
  • Not turning in a check stub (despite the stub already being in the CalWORKs system); 
  • As well as other reasons unknown to Briana.

These sanctions cost Briana hundreds of dollars, as highlighted in the preceding chart. With the $242 recouped from sanctions, every month, Briana could have paid for:

  • Six days of groceries for her family;
  • Three-quarters of her monthly utility bill;
  • 48 gallons of gas; or
  • Funds to support rent and car payments.

Briana’s sanctions coupled with remaining cash aid paying for her CNA certification exacerbated her financial insecurity. At the time that Briana shared her story at a March 2024 Assembly hearing, she was $300 short on her rent and car payment and had $0 left on her EBT card.

Briana’s story is just one example of how CalWORKs sanctions perpetuate the cycle of poverty and are rooted in a racist and sexist history popularized by figures like then California Governor Ronald Reagan that punished Black and other mothers of color, in particular. In the words of Briana: “Our future generations, our grandkids, somebody down the line is gonna need help. And I just want it to be easier for them. We need to defend these programs against cuts, get rid of these unnecessary sanctions, and reimagine CalWORKs into a program that opens those doors to help us get to where we want to go.”

How can policymakers ensure families in need have access to CalWORKs?

The governor’s commitment, outlined in his January budget proposal, to apply to a federal pilot aiming to center family well-being over work requirements offers California a great opportunity to reevaluate its sanction policy. Policymakers can make a significant difference in CalWORKs families’ lives, like Briana’s, by eliminating non-federally required sanctions and minimizing the amount sanctioned families lose each month. Additionally, policymakers should continue investing in CalWORKs and protect the program from harmful cuts. CalWORKs should center the well-being of families by removing barriers instead of amplifying them.

Health & Safety Net

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key takeaway

While domestic and sexual violence disproportionately affects women, transgender, non-binary, and women of color, prevention programs that address root causes like gender and racial inequities can significantly improve safety for all Californians.

All Californians should be able to live in safe environments, free from violence and fear. However, millions of Californians experience domestic and sexual violence every year and women, transgender, non-binary, and women of color are most likely to experience these types of violence.

Domestic and sexual violence prevention programs are proven ways to stop violence from occurring in the first place. Prevention programs take a proactive approach and seek to shift culture on racial and gender inequities. Examples of prevention work include educating people on healthy relationships, increasing economic security for families, and reducing systems and beliefs that can lead to violence. These programs have been shown to:

  • Improve the safety of school and community spaces,
  • Lead to significant community and structural changes,
  • Lead to sexual violence prevention being added to school district budgets,
  • Make physical spaces safer in order to reduce vulnerability to sexual violence,
  • Increase student conversations about sexual violence as a problem,
  • Reduce dating abuse, and
  • Result in substantial cost savings due to reductions in sexual violence-related costs.

How does California support domestic and sexual violence prevention?

Since 2018, California has provided small, one-time grants for prevention programs. The California Governor’s Office of Emergency Services (Cal OES) administers multiple grants with this one-time funding to support prevention efforts. There are also some federal funds available for prevention, but the large majority of federal funding for addressing domestic and sexual violence is for intervention only, and in fact, is prohibited from being used for prevention efforts. Despite domestic and sexual violence prevention’s proven effectiveness, state funding is relatively new and has been sporadic.

What organizations have received state prevention funding?

Many organizations across the state have received state funding in the form of Cal OES prevention grants. These grants are focused on supporting community-based organizations in the implementation of domestic and sexual violence prevention and education initiatives, especially those that focus on serving communities that are disproportionately impacted. Examples of organizations that have been able to increase their prevention efforts because of the state funding are described below.

ACKNOWLEDGEMENT

Special thank you to Korean American Family Services, Project Sister Family Services, and Rainbow Services for providing the information included in these examples.

How has state prevention funding impacted what services organizations can provide?

Dedicated prevention funding has a meaningful impact on communities. Perspectives from these organizations demonstrate how funding has supported the services that can be provided.

What would happen without ongoing domestic violence prevention funding?

Each organization recognized that their important work, which supports survivors and helps prevent domestic violence, is at the peril of sporadic state funding. Organizations describe how without these grants, they would not have any prevention funding to continue sustaining these programs.

  • Both Project Sister and Rainbow Services explained how they are not able to do more ongoing prevention education due to a lack of ongoing funding, and that the sustainability of current programs relies on the state’s grants.
  • KFAM shared that the only prevention funding they have is from the Cal OES grants. Although there is much more funding provided for intervention efforts, prevention grants allowed them to be more creative with programs to prevent violence in the first place, rather than only supporting survivors afterward.

Domestic and sexual violence prevention efforts take time. These programs work on shifting culture, which takes long-term planning and commitment. However, as the organizations in the examples all noted, organizations doing this critical work cannot commit to long term programming without permanent, ongoing funding. The governor’s proposed 2024-25 budget does not include any additional funding for domestic violence prevention, which puts these programs providing critical domestic violence prevention services at risk for termination.

No Californian should live in fear over their safety. In order to adequately protect Californians from domestic and sexual violence, the state should provide ongoing, sustained funding for prevention programs that can help stop the violence before it starts.

Poverty & Inequality

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key takeaway

California has a significant unmet need for affordable child care, with only a fraction of eligible children receiving subsidized care. The state needs to make significant and sustainable investments in expanding subsidized child care options, particularly for infants and toddlers.

Affordable child care is critical for supporting California’s families to grow and thrive. Within California’s mixed delivery system, the California Department of Social Services (CDSS) provides child care programs at low- to no-cost for families with low incomes. For far too long, the demand for subsidized child care has outpaced supply. Specifically:

  • In 2015, 85% of children eligible for subsidized child care did not receive services.
  • In 2017, 89% of children eligible for subsidized child care did not receive services.

An analysis of 2022 data shows an unfortunate continuation of this trend, underscoring the need for a larger supply of subsidized child care spaces in California. 

Child Care and Development Transition

This analysis only includes child care programs within CDSS. The 2020-21 Budget Act transferred the child care and development programs from the California Department of Education (CDE) to CDSS. This transfer was intended to support a more integrated and coordinated system of care that could more effectively serve children, families, and the workforce. Thus, as of July 1, 2021, CDE only maintained oversight of two early learning programs: 1) The California State Preschool Program (CSPP); and 2) Transitional Kindergarten (TK) — both of which are now a part of CDE’s “Universal Pre-K” system. Previous Budget Center analyses of unmet need included CSPP. However, given the transition of programs from CDE to CDSS and related changes to eligibility requirements and other aspects of these programs, this analysis does not include CSPP. A forthcoming publication will explore eligibility and enrollment specific to CSPP. 

What is the unmet need for child care?

In 2022, only one in nine of California’s children eligible for child care actually received services. The number of children eligible for subsidized child care has grown from 1,479,000 in 2015 to 2,161,000 in 2022. While the number of new subsidized child care spaces has increased — notably, 146,000 new spaces were added since 2021-22 — the number of new slots has not kept pace with the growing demand. The chart below provides a visual of the unmet need for child care in California.

What are the implications of failing to meet California’s child care needs?

Families of color in California have historically been denied access to key services and opportunities. These inequities continue to negatively impact Californians of color as recent analyses have shown that poverty rates nearly doubled for Black and Latinx adults in California from 2021 to 2022. Moreover, Californians of color are more likely to struggle with paying for basic expenses.

The chart below shows that children of color are disproportionately eligible for subsidized child care. As the demand for subsidized child care continues to far outpace supply, families of color are most impacted by this insufficient supply. Therefore, the lack of subsidized child care continues to exacerbate the historical and unjust inequities that impact Californians of color.

CDSS’s child care and development programs serve ages zero to twelve. Within this age range, the cost of providing care is the highest for infants and toddlers; yet, providers that serve infants and toddlers typically make less money. Given this context, as well as the potential impacts of TK expansion on the mixed delivery system, there is concern around a diminishing supply of infant and toddler care options.

The chart below shows that across all age groups, only a fraction of those eligible for care are actually enrolled. However, children ages 0-2 are the only age group that is solely served by CDSS’s child care programs (other age groups have access to programs hosted by CDE). Thus, the unmet need for child care is particularly acute for infants and toddlers and failure to expand subsidized child care may disproportionately impact this age group. While school-age children have access to alternatives, it's important to note that the unmet needs stretch beyond infants and toddlers.

How can policymakers address the unmet need for child care?

While the supply of subsidized child care has increased since the dramatic cuts made during the Great Recession, California is still a long ways away from meeting families’ child care needs. Specifically, to help address the unmet need for child care, the 2021-22 enacted budget set a goal of adding 200,000 new child care slots. While 146,000 of these slots have been funded, slot expansion has been delayed for the last two fiscal years. The governor maintains his commitment to fund all 200,000 slots by 2026-27; however, the timeline for funding the remaining 54,000 slots by the deadline remains unclear.

The administration can increase the number of new slots in the 2024-25 budget to make immediate and needed progress on addressing the unmet need for child care. The unmet need for child care in California is an issue that requires state leaders' attention regardless of the cyclical ups and downs of the state budget. State leaders should make significant and sustainable investments in increasing access to affordable child care that meets families’ needs. Failure to do so keeps thousands of families — mainly families of color — on child care waiting lists, hampering their economic mobility and ability to find nurturing care for their children.

Child Care & Preschool

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key takeaway

California corporate profits reached a record-breaking $368 billion in 2021, but they pay just about half of what they did in the early 1980s in state taxes as a share of those profits. Building a tax system that is more fair will help Californians — whose wages have not kept pace with inflation or record profits — make ends meet.

All Californians should have the means to keep food on the table and a roof over their heads, and to invest in education and advancement for themselves and their families. California’s businesses have a role to play in achieving this vision, both in providing well-paying jobs and in contributing their fair share to state revenues to support public services — including a safety net for people during times of unemployment, disability, or when time is needed to care for family. However, while corporations have seen skyrocketing profits in recent years, the typical California worker’s earnings have barely kept up with inflation.

California corporate profits reached $368 billion in 2021, reflecting a 155% increase since 2002 in inflation-adjusted terms. In contrast, a typical California full-time, year-round worker only saw their employment earnings increase by 13% during that time period after accounting for inflation.1The higher median wage growth seen in 2020 and 2021 was likely due in part to a change in the composition of the workforce. Because lower-paid workers disproportionately lost their jobs during the first two years of the pandemic, the remaining workforce was relatively higher paid. Nationally, this composition effect had mostly subsided by 2022. Indeed, inflation-adjusted median employment earnings growth in California from 2002 to 2022 was only 8%. This figure is not shown in the chart because comparable data on corporate profits for 2022 is not yet available.

“
Large highly profitable corporations can afford to contribute their fair share in taxes.
”

Corporate profits are highly concentrated among a small group of very profitable corporations. For example, less than 1 out of every 100 corporations (just 0.6%) made $10 million or more in annual profits in California in 2021. However, this small share of corporations accounted for more than 60% of corporate profits statewide.

Those corporations with profits of at least $10 million saw their state profits more than double from $113 billion to $234 billion between 2017 and 2021. Corporations with profits of $5 million to $10 million also saw a near-doubling of their profits during that same period. At the same time that profitable corporations were doing exceedingly well, many Californians — particularly those with low incomes and Black, Latinx, Pacific Islander, and other Californians of color — suffered the devastating health and economic consequences of COVID-19, and continue to struggle with the high costs of necessities. Californians have seen their purchasing power fall with rising prices in recent years, a phenomenon which some researchers suggest has been amplified by corporations keeping prices high even as their costs declined and their profit margins increased.

Existing Tax Policy Exacerbates Inequities

Recent research shows that federal and state tax systems actually reinforce the concentration of profits among a small share of large corporations. In other words, after-tax profits are even more concentrated at the top than pre-tax profits. For example, the largest 10% of US public non-financial corporations held 95% of domestic corporate profits before federal and state taxes, but 99% of profits after taxes, according to analysis by the Roosevelt Institute. This is not surprising considering that some of the biggest corporate tax breaks provide disproportionate advantages to large and multinational corporations, and these corporations can afford to hire expensive accountants and lawyers to help them game federal and state tax systems.

More equitable state taxation of corporations would counteract the outsized advantage of corporations with the most market power and raise needed state revenues for critical public services to benefit California’s communities. It could also increase racial and economic equity in the state, since corporate profits flow to corporate stockholders, who are disproportionately white and wealthy. The equity impacts would be even greater if the revenues raised were used to support Californians who have been economically disadvantaged by racism and discrimination.

Big corporations can afford to contribute their fair share in taxes. Corporations pay about half of what they did in the early 80s in state taxes as a share of their California profits. Plus, California corporate taxes are a minuscule share of their overall business expenses.

Requiring immensely profitable corporations to contribute more to supporting state services and combating corporate tax avoidance would level the playing field among businesses and help create a more equitable state for Californians.

Taxes & Revenue
  • 1
    The higher median wage growth seen in 2020 and 2021 was likely due in part to a change in the composition of the workforce. Because lower-paid workers disproportionately lost their jobs during the first two years of the pandemic, the remaining workforce was relatively higher paid. Nationally, this composition effect had mostly subsided by 2022. Indeed, inflation-adjusted median employment earnings growth in California from 2002 to 2022 was only 8%. This figure is not shown in the chart because comparable data on corporate profits for 2022 is not yet available.

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key takeaway

California’s unemployment benefits fall short, leaving many struggling to make ends meet when they lose work. State policymakers can raise unemployment benefits, ensuring this crucial support system adequately sustains Californians during job loss.

Unemployment benefits provide a critical safety net for many workers who lose their jobs, helping them to support their families while they seek to reenter the workforce. However, state unemployment benefits have not been raised in two decades and currently don’t provide enough money for Californians – particularly those with low incomes – to cover the cost of living. This points to the urgent need for California to increase state unemployment benefits so that workers can make ends meet when they lose work.

California’s unemployment benefits only replace up to half of a worker’s lost earnings. But many workers struggle to pay for food and rent even while working full-time. Covering the costs of living on half of their earnings is impossible. For the majority of California renters with low incomes who spend at least half of their income on rent, their entire unemployment benefit would go to rent if they don’t have other income sources. Or it might not even cover the full cost of rent, leaving them in debt, at risk of eviction, and with nothing left over to pay for other basic needs. For example, 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.

Workers of color, including American Indian, Black, Latinx, and Pacific Islander Californians – and particularly women – are especially at risk of being unable to support their families while out of work because many have been segregated into low-paying jobs where unemployment benefits are too low to cover basic living costs. Insufficient benefits pose a particularly significant threat to the economic security of Black Californians, who consistently face twice the unemployment rate of white workers due to hiring discrimination and other barriers to work created through centuries of structural racism.

Losing a job would be less devastating if Californians could count on getting unemployment benefits that allow them to cover the costs of rent, food, and other basic needs while they search for work. State lawmakers should increase state unemployment benefits, especially for low-paid workers, and make sure that businesses uphold their responsibility to adequately fund this critical safety net for their workforce.

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key takeaway

Despite record profits, corporations pay a tiny fraction of their California expenses in taxes — just 0.11% on average. Modest corporate tax increases could generate substantial revenue to boost income for families in poverty, fund crucial public services, and address economic inequality, especially for Californians of color.

State tax revenues make possible the public services and infrastructure that Californians rely on, like education, roads and transit, and the social safety net to help families and individuals make ends meet during times of financial instability. Corporations doing business in California benefit from the state’s resources and investments and should be expected to fairly contribute to state revenues.

Corporations Underpaying Their Fair Share

Meanwhile, corporations have been paying around half of what they did a generation ago in state taxes as a share of their California income — less than 5% in 2019 compared to 9.5% in the early 1980s — due in part to state tax rate reductions and the creation and growth of corporate tax breaks over the years. This is despite the fact that pre-tax corporate profits have been near record highs (as are after-tax profits).

In addition, the taxes these corporations pay to the state on their California profits are an incredibly small fraction of their expenses — just 0.11% on average from 2017 to 2019, according to a Budget Center analysis of Franchise Tax Board data.1Business expenses are defined in this analysis as the total deductions reported to the Franchise Tax Board for corporations filing taxes in California. Data for tax years 2020 and 2021 are excluded from this analysis because a pandemic-era temporary policy was in place for these years that limited the ability of corporations to fully utilize tax credits and to offset current-year income with prior-year losses. Therefore, corporate tax collections were higher in these years than in normal years. In other words, just over one cent of every $10 of what these businesses spent went to California corporate taxes.

Even if state leaders increased corporate taxes to protect and strengthen public services — by raising tax rates on the most profitable corporations and/or limiting corporate tax breaks — these taxes would still represent a small fraction of total business expenses. For example, if corporations had contributed $2.5 billion more in taxes each year, their California corporate taxes would have made up 0.13% of total business expenses. If they had contributed $5 billion more, these taxes would have made up 0.16% of their expenses.

To put this in perspective, $2.5 billion in additional revenue could boost the incomes of families by more than $2,000 for every child living in poverty in the state, and $5 billion could provide more than $4,000 per impoverished child. However, it would not substantially increase the costs of doing business for profitable corporations and would be unlikely to drive companies’ decisions about how much business to do in California. This is especially true considering that corporations’ tax obligations to the state are based on how much of their sales are made in California, and California provides a considerable customer base.

Substantial Benefits for Struggling Californians

While a tax increase of either size would be manageable for wealthy corporations, the resulting revenue could be very meaningful for Californians struggling with the basic costs of living, including housing, food, child care, and health expenses. Many of these Californians have been locked out of economic security in large part due to the low wages, insufficient benefits, and few advancement opportunities provided by some of these very wealthy corporations. Californians of color have been particularly excluded from economic opportunities due to structural racism and discrimination in employment and other arenas.

Corporations Can Afford to Contribute More

Highly profitable businesses in California benefit from having healthy, well-educated workers who can afford to live near their jobs and have the necessary care and education for their children while they work. These corporations can afford to pay a small increase in state corporate taxes to support caring for and educating California’s children and youth, keeping the state’s residents healthy and housed, and ensuring they don’t fall through the cracks when faced with a crisis.

Taxes & Revenue
  • 1
    Business expenses are defined in this analysis as the total deductions reported to the Franchise Tax Board for corporations filing taxes in California. Data for tax years 2020 and 2021 are excluded from this analysis because a pandemic-era temporary policy was in place for these years that limited the ability of corporations to fully utilize tax credits and to offset current-year income with prior-year losses. Therefore, corporate tax collections were higher in these years than in normal years.

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key takeaway

California businesses pay taxes on the smallest share of wages in the United States, leading to insufficient funds for unemployment benefits.

Unemployment benefits provide a critical safety net for many workers who lose their jobs, helping them to support their families while they search for new employment. Millions of Californians turned to unemployment benefits after losing work due to the economic effects of the COVID-19 pandemic. However, policymakers previously failed to require businesses to pay the true costs of unemployment benefits for their workers, leading California to borrow billions of dollars from the federal government to pay for benefits – a repeat of what happened during the Great Recession.

California is one of just four states that allow employers to pay unemployment insurance taxes on the smallest wage base permitted by federal law, despite the lessons of the last recession and the need for businesses to contribute more to support the workforce.

State unemployment benefits are financed through payroll taxes paid by employers, which generate revenues that are deposited into the state’s unemployment insurance trust fund. But California businesses don’t pay these taxes on their entire payroll — they pay based only on the first $7,000 of each employee’s annual pay. This low base limits the amount of revenue the state can generate for unemployment benefits. For example, a 4% payroll tax would raise just $280 per worker in California, compared to $2,500 per worker in Washington state, where the taxable wage base is $62,500. Even with the same payroll tax rate, Washington would generate almost nine times more revenue than California for each employee making at least $62,500.

California’s taxable wage base has been frozen at $7,000 since 1983, failing to increase with rising wages. Consequently, the state’s base amounts to just 8% of the average annual earnings for a year-round worker – the smallest share in the US. In contrast, the taxable wage bases in 13 states are at least half of average annual earnings. Most of these states paid for unemployment benefits during the pandemic without federal loans.

California’s leaders must ensure that businesses uphold their responsibility to pay the true cost of unemployment benefits for their workers by increasing the taxable wage base for employer payroll taxes. This would not only prevent future debt, but also make it possible for California to increase unemployment benefits so that workers can meet rising costs of living as they seek to reenter the workforce and provide for their families.

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