Kathleen Pender:
Jobless help may be less than expected, according to Labor Department guidance.
Instead of getting $400 a week in “lost wages assistance” as outlined in President Trump’s memo issued Saturday, unemployed people in some states would get only $300, according to U.S. Department of Labor guidance issued Wednesday.
It’s also possible they could get nothing if the plan is deemed illegal.
Trump announced the plan after Congress was unable to agree on a way to replace the extra $600 a week everyone on regular state or federal pandemic unemployment got from April through July.
His memo calls for using up to $44 billion from a federal disaster fund to provide $300 a week in “lost wages assistance” to unemployed people whose primary benefit is at least $100 a week (closing out additional assistance to the lowestpaid workers).
The federal law that allows funds to be used this way requires states to pay 25% of the $400 a week cost from their own funds — money that some governors, including California’s Gavin Newsom, said they didn’t have.
Initially, it appeared that if states didn’t provide the matching funds, their residents would get nothing. But the Labor Department guidance said, “States may meet the $100 per claimant per week state match with the payments they make for regular state (unemployment insurance) benefits to claimants” who are fully or partially unemployed as a result of the coronavirus. However, “In this case eligible claimants will only receive a (lost wages assistance) payment of $300 in addition to their weekly benefit amount.”
This makes it sound like selfemployed and other people receiving Pandemic Unemployment Assistance would not be eligible for the extra $300, because money for that program is coming from the federal government under the Cares Act, not regular state unemployment, which is funded by a
tax on employers.
However, the guidance says “eligible claimants” are people who selfcertify they lost work caused by coronavirus disruptions and receive at least $100 of regular unemployment compensation, Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation, Extended Benefits and other federal programs.
The program is called lost wages assistance because it’s not part of the regular federalstate unemployment system. In fact, the guidance states that “federal grants for administration of state (unemployment compensation) law may not be used to pay for any part of the costs of administration” of the emergency assistance.
Georgetown University law professor David Super argues that the entire program is illegal under the Stafford Act, which purportedly allows it.
“The Administration is paying the full cost of the benefit with federal funds in defiance of the Stafford Act’s unwaivable requirement that states pay onequarter of the cost,” he wrote in a blog post. “Allowing states to doublecount their regular unemployment benefits as their match when they are already counting those benefits to meet requirements of unemployment law is expressly prohibited by longstanding fiscal integrity rules.”
In an email, Super said, “Some of the confusion comes from this program being run by the Federal Emergency Management Agency but grafted onto a program being run by the Department of Labor,” and from top administration officials making pronouncements that often conflict each other and the agencies. “My best guess is that they will end up allowing the new benefit to go to recipients of Pandemic Unemployment Assistance and other federallyfunded benefits, although they have gone back and forth on that question repeatedly.”
Super wrote that “chaos” surrounding the program’s ground rules, “and the difficulties many states will have reprogramming their computers” will delay payment of the new benefit until late August or early September. “Because the administration only set aside enough money for five or six weeks of aid, many families may receive only a single retroactive check.”
Wealth tax proposal: A group of state lawmakers on Thursday proposed a firstinthenation state wealth tax that would hit about 30,400 California residents and raise an estimated $7.5 billion for the general fund.
The tax rate would be 0.4% of net worth, excluding directly held real estate, that exceeds $30 million for single and joint filers and $15 million for married filing separately.
California is facing a big budget deficit because of the health and economic crisis brought on by the coronavirus, and “we can’t simply rely on austerity measures,” to close it, said Rob Bonta, DOakland, the lead author of AB2088. “We must consider revenue generation.”
He admitted that the unionsponsored bill will not be heard before the Legislature adjourns Aug. 31, but “it can be reintroduced on day one of the next session.”
Bonta said he would like to see a wealth tax passed in addition to the “millionaires tax” proposed in a bill introduced in late July. AB1253 would add surcharges of 1% to incomes (joint or single) between roughly $1 million and $2 million, 3% on income between $2 million and $5 million, and 3.5% on income greater than $5 million, bringing the top rate to 16.8%. California’s top rate today, at 13.3%, is already the highest in the nation.
People subject to the wealth tax would report it to the Franchise Tax Board along with their income taxes. They would have to report all assets including stock in publicly and privately traded corporations; interests in partnerships, private equity or hedge funds; cash, bonds and savings accounts; mutual funds, futures and options; art and collectibles; offshore financial assets, pension funds, nonmortgage debt, real property and mortgage debt.
“Directly held real property, and mortgages and other liabilities secured by directly held real property,” must be reported, but would not be considered in calculating the taxpayer’s worldwide net worth, the bill said.
Real estate would be exempt from the wealth tax because it’s already subject to property tax, at a higher rate, Bonta said.
“It is far easier to call for a statelevel wealth tax than it is to actually design an enforceable one,” said Jared Walczak, a vice president with the Tax Foundation, a think tank. Maybe that’s why no state has imposed one.
“Some New York legislators are floating the idea, but Governor Cuomo has poured cold water on the notion, rightly concerned that it would lead to an exodus of high net worth individuals from the state,” Walczak said via email.
Implementing a wealth tax at the state level “would be extremely complex, with questions of how to value illiquid assets and whether residents’ outofstate wealth — including their investment holdings — can be taxed.” He added that “any tax that is actually effective at taxing wealth, however, would be equally effective at driving wealth out of state.”
Emmanuel Saez, a UC Berkeley economics professor, said income tax is not an effective way to tax the ultrawealthy, because they can avoid the income tax as long as they don’t cash in their investments. Facebook CEO Mark Zuckerberg could avoid the income tax as long as he doesn’t sell his Facebook stock, and if he moved to Florida before realizing his gains, he may never owe tax to California, Saez said during a call announcing the bill.
Saez said the bill would not deter startups because it would let entrepreneurs defer the wealth tax for a period of time. “Liquidityconstrained taxpayers with ownership interests in hardtovalue assets and business entities, such as startup businesses, shall be able to elect for an unliquidated and deferred tax liability to be attached to these assets instead of the net value of these assets being assessed at the end of a tax year.” The taxpayer would have to sign a contract with the state specifying when the tax would be paid.
In a paper he coauthored, Saez said California has 12% of the U.S. population but 17% of all U.S. millionaires and 25% of its billionaires. In 2011, California had only 15.5% of all the nation’s millionaires and 21% of billionaires. The wealth tax, he said, would hit about 0.15% of California tax filers.
The Franchise Tax Board would administer the tax.
“The state approved $9.2 billion in business tax increases in the new budget, but Sacramento politicians and special interests continue to seek income tax increases, property tax increases, a ‘headcount tax’ on instate employees, and this new annual tax on money that was left over after all the other taxes were paid,” Robert Gutierrez, president of the California Taxpayers Association, said in a statement.
He noted that “a very small number of Californians pay the vast majority of state income taxes. When the constant drumbeat for outrageous tax hikes drives them away, who will pick up the tab?” Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender