GOP Blocks Bill to Hike Payroll Tax : Assembly: The action is expected to cut disabled workers’ benefits by 20%. Republicans seek to overhaul the state’s disability insurance system.

Assembly Republicans on Monday blocked a bill to increase payroll taxes, an action expected to result in 20% cuts in weekly benefits for disabled workers.

Assembly Republicans said they wanted stronger commitments from Democrats to overhaul the state disability insurance system before approving any payroll tax increase.

The system provides weekly disability checks to employees who must take time off the job because they are pregnant or have non-work-related injuries. The system is separate from the much maligned workers’ compensation insurance system, which provides benefits for those injured on the job.

With the bill’s failure, the Employment Development Department announced plans to go forward with the cuts to be imposed on new applicants. The maximum benefit will drop from $366 to $266 a week. The minimum will stay at $50.

“We need to take actions to return the fund to solvency,” said department spokeswoman Anita McKenzie, adding that the cuts would apply only to new applicants for disability benefits.

McKenzie estimated that 840,000 Californians collected $2.7 billion in disability benefits last year. This year, the state estimated that 881,000 workers would seek the benefits. The benefit reductions will save $717 million over two years and leave the fund with a reserve of $251 million.

Assemblyman Steve Peace (D-Chula Vista), who carried the bill, predicted that a compromise will be struck soon.

Legislators blamed the recession for draining the disability fund, noting that the 800,000 Californians who have lost their jobs in recent years are no longer paying disability insurance premiums.

The bill passed the Senate last month, but could not gather the required two-thirds vote in the 80-member Assembly. Monday’s vote was 43 to 30, with only one Republican supporting it.

The bill sought to hike payroll deductions earmarked for state disability insurance to 1.4% on the first $34,000 a worker earns in a year. The rate is now 1.3%. The added tax would have expired at the end of the year.

Assembly analysts estimated that increased payroll taxes contemplated by the failed bill would have brought an additional $218 million into the fund, and that a series of benefit reductions also in the legislation would have saved $220 million a year.

Assemblyman Charles Quackenbush (R-San Jose) said Republican legislators and Gov. Pete Wilson would support the increased payroll tax if Democrats agreed to an overhaul of the system. Republicans would like to bar those injured on the job from seeking disability benefits while their claims for workers’ compensation insurance are pending.