In 2011, President Obama proposed "to ride to the rescue of states" that had borrowed billions of dollars from the federal government to continue to pay unemployment benefits during the economic downturn. His plan was to "give the states a two-year breather before automatic tax increases would hit employers, and before states would have to start paying interest on the loans." Many of the states had begun the recession with "too little money in their unemployment trust funds'" Those states "quickly ran through what little they had as unemployment rose and remained stubbornly high month after month. With their own trust funds depleted, 30 states borrowed $42 billion from the federal government to continue paying unemployment benefits." These states were facing an estimated $1.3 billion in interest payments to Washington due in the fall of 2011. The President’s proposal also included raising the minimum taxable wage base from $7,000 to $15,000 in 2014. "The rate of the federal portion of the unemployment taxes would then be lowered, so the proposal would not raise federal taxes on states that do not owe the federal government money. But it would speed the rate at which states that do owe money repay the federal government, and allow states to collect more unemployment taxes to rebuild their trust funds if they do not lower their tax rates." By February, 2011, eighteen states had already raised their minimum taxable wage base to $15,000 or more, according to the National Association of State Workforce Agencies. Iris Lav, an adviser at the Center on Budget and Policy Priorities, said that the unemployment system was “a constellation of problems" that needed to be solved." She added that the near-term problem was the economy, and "both the interest payments and the principal repayments are [were] cutting into employers, and it [made] great sense to postpone them." The larger question was how to "get states to solvency.”[1]
Analysis of the proposal is at "Proposal to Rescue States."
1. Michael Cooper and Sheryl Stolberg, "Obama Plans to Rescue States with Debt Burdens," The New York Times, February 8, 2011.
