California hardly friendly to business

Reader Input
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California is not business-friendly because we are now a “FUTA credit reduction state.” Gary Vogt asked for specific examples (Reader Input, Jan. 19). There are many. Here comes one: Please try not to fall asleep. There will be a quiz. Most employers in the USA must pay Federal Unemployment Tax (FUTA) which is calculated on the first $7,000 of each employee’s annual earnings. For at least the last 30 years the rate for California employers has been 0.8 percent. In the middle of last year the rate went down to 0.6 percent. Unfortunately for California employers, the glee over an actual tax cut did not last long. California’s Unemployment Insurance (UI) system is dead broke, so they have been borrowing heavily from the FUTA funds in order to continue paying benefits. There is a limit to the tolerance the feds have for states who continuously borrow from the FUTA fund without paying it back. California crossed that limit last year and became what the feds call a “credit reduction state.” This meant almost all California businesses had to pay an additional 0.3 percent for FUTA, retroactive to the beginning of 2011. This additional tax had to be paid by Jan. 31, 2012 in order to avoid penalties and interest. Employers did not know about this for sure until the end of last November, so they had about two months to come up with the extra cash. But wait, it gets worse. The feds add another 0.3 percent to the California FUTA rate for each following year unless California pays back the FUTA it has borrowed. The chance of that happening is about the same as Bob and Ginny Mock becoming Republicans. So, how does this compare with other states? There are 18 credit reduction states, so if you are planning to expand your existing business or start a new one, there are 32 states out there where your FUTA expense will be substantially less than California. Not only does this help make California unfriendly, it also encouraged the “real businessman” who stays here to figure out how to run her business with fewer employees. Just what California needs: A growing incentive to not hire people. And now, the quiz. True or false: There is only one state west of Nebraska which is a FUTA credit reduction state. Answer: False. Nevada is in the same pickle with California. Sweet dreams, Mr. Vogt. Grant Shaw, Auburn