The ‘Su Tax’: California Businesses Are Still Paying for Biden Nominee Julie Su’s $31B Mistake

Julie Su is on Capitol Hill auditioning to be President Joe Biden’s next labor secretary, but back in her home state of California, businesses are paying what some call the "Su Tax"—a hike in payroll taxes to make up for the massive fraud that took place on her watch during the COVID-19 pandemic.

Nearly 60 California businesses and agriculture groups complained last month that their four million-plus members face escalating payroll taxes to bail out the state’s insolvent unemployment insurance fund. The groups warned state legislative leaders that the taxes—which could exceed $400 per worker each year—threaten employee-heavy small businesses and restaurants that were already devastated by California Democrats’ strict COVID-19 lockdowns.

The business groups did not mention Su by name, but they noted how California’s unemployment insurance fund spent up to $31 billion on payouts for fraudulent claims when she was the state labor secretary. After presiding over the fund’s fall into insolvency, Su left to become the Biden administration’s deputy labor secretary.

"California’s businesses … had no control over [the fund’s] mistaken distribution of the employer-funded UI funds–but now California employers are being taxed for these policies," the groups, led by the California Chamber of Commerce, wrote in a March 23 letter.

Now, with Su seeking confirmation as Biden's labor secretary, the plight of California businesses underscores swing-vote senators' concerns about her competence. The Senate Health, Education, Labor, and Pensions (HELP) Committee  voted along party lines Thursday to advance Su’s nomination to a vote by the full chamber, but her confirmation remains very much in doubt.

In California, some Republicans have taken to referring to the new costs of doing business as the "Su tax." While Rep. Kevin Kiley (R., Calif.) was familiar with the term, he preferred a different monicker.

"It’s an incompetence tax: a price private citizens are being forced to pay for their government’s failures," Kiley told the Washington Free Beacon. "The predicament that small businesses in California now find themselves in—facing double taxation to make up for the government’s negligence—is another example of why Julie Su’s nomination to be our nation’s next labor secretary is so ill-considered."

Ranking committee member Bill Cassidy (R., La.) during Thursday’s hearing voiced some of the objections to Su's confirmation that Republican lawmakers and national business groups had raised.

"Julie Su has an extensive record of partisan activism and promoting policies that undermine workers to the benefit of politically-connected labor unions," Cassidy said. "A qualified Secretary of Labor needs to successfully handle negotiations, manage a department properly, and refrain from partisan activism. I haven’t seen evidence of Julie Su’s ability to do any of those three things."

At a HELP committee hearing last week, Su insisted that she had moved swiftly to stop California from being defrauded during the pandemic. But her testimony was directly contradicted by federal and California state audits, which found that, under Su, California's Division of Labor Standards Enforcement failed to act for months to stop the fraud despite repeated warnings.

According to the audits and to Su’s own directives, she tossed safeguards out the window to pump unemployment dollars to the millions of people who were rendered jobless during the state’s long COVID-19 lockdown. Early on, Su suspended a requirement that unemployment insurance recipients check in every two weeks to prove they still qualify for benefits—arguing the state could not otherwise keep up with the staggering number of claims. The unemployment insurance fund also paid claims to parties its own analysis flagged as suspicious—which California’s watchdog deemed a "lax approach."

A federal audit, meanwhile, found that California transferred one fraudster $1.6 million in unemployment benefits over 164 days.

Ahead of Su's nomination to deputy labor secretary in January 2021, she acknowledged that her agency wasted as much as $31 billion in pandemic unemployment insurance payments—more than any other state. "There is no sugar coating the reality, California did not have sufficient security measures in place to prevent this level of fraud," she said at the time.

More than two years later, California’s unemployment insurance fund is still nearly $20 billion in the red. Since federal law decrees that the fund must be replenished, the burden falls on California businesses through a reduction of their tax credits. The businesses—already among the nation’s most heavily taxed and regulated—will pay for the state’s errors starting with a $21-per-employee increase in their payroll taxes. The tax bump will rise every year that the fund remains insolvent, maxing out at $434 per worker, with no exemption for small businesses.

As the business groups pointed out in their letter, California Gov. Gavin Newsom’s (D.) latest budget does not address the fund’s insolvency, and there is no plan in place to make it whole.

"Just as COVID-19 was a statewide public emergency and went beyond individual private employers," the groups wrote, "the cost of COVID-19 on California’s UI Fund should not fall on private employers alone."

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