So many people now receive jobless benefits that 30 states have run out of their unemployment trust funds and are borrowing $42 billion from the federal government. Three of the hardest-hit states — Michigan, Indiana and South Carolina — have borrowed so much that they triggered automatic unemployment tax increases on employers, and the same thing is likely to happen to 20 more states this year.
The crisis could prove to be a point of friction between Republican governors and members of Congress. On Tuesday, the Obama administration unveiled a smart proposal to delay those tax increases and provide some relief to both employers and state governments. Congressional Republicans reflexively objected to the idea, which could produce higher taxes in three years, but this plan provides relief that might stimulate hiring now when it is most needed. Republican governors in desperate states like Michigan and Indiana are likely to find that more attractive than party members in Washington do.
Under the plan, which is subject to Congressional approval, there would be a two-year moratorium on the increased taxes that employers would otherwise have to pay to support the unemployment insurance system, which could save businesses as much as $7 billion. During those same two years, states would be forgiven from paying the $1.3 billion in interest they owe Washington on the money they have borrowed. The stimulus bill provided a grace period, but it expired last year.
In 2014, when the economy will presumably have recovered somewhat, employers will have to make up for the moratorium by paying higher unemployment taxes to the states. Specifically, they will have to pay taxes on the first $15,000 of an employee’s income, instead of the current $7,000. But, even then, unemployment taxes will be at the same level, adjusted for inflation, as they were in 1983, when President Ronald Reagan raised them.
The administration is proposing to cut the federal unemployment tax rate in 2014 so that employers would pay the same amount to Washington as they do now. States, if they choose to do so, could collect more from each employer to repay the federal government and restock their own unemployment trust funds.
Republicans immediately derided the proposal as an irresponsible tax increase. On his blog, Representative Eric Cantor, the House majority leader, criticized the higher taxes in 2014, but he did not mention the two-year moratorium on the automatic tax increases in 20 vulnerable states.
The proposal is not a bailout for the states or employers but rather a recognition that the automatic tax increases built into the benefits system could put a brake on hiring — and in precisely the states where employers need the most incentive to bring people back to work.
Over the next decade, as more people return to work and the states repay their debt more quickly, the proposal is expected to bring more dollars back to the federal government than the temporary moratorium will cost, so the long-term effect on the deficit should be positive. The full details of the plan’s costs and benefits will be available when President Obama submits his 2012 budget to Congress next week. When he does, both parties should take a close look at the numbers and seize the opportunity to keep this fundamental safety net solvent.
The crisis could prove to be a point of friction between Republican governors and members of Congress. On Tuesday, the Obama administration unveiled a smart proposal to delay those tax increases and provide some relief to both employers and state governments. Congressional Republicans reflexively objected to the idea, which could produce higher taxes in three years, but this plan provides relief that might stimulate hiring now when it is most needed. Republican governors in desperate states like Michigan and Indiana are likely to find that more attractive than party members in Washington do.
Under the plan, which is subject to Congressional approval, there would be a two-year moratorium on the increased taxes that employers would otherwise have to pay to support the unemployment insurance system, which could save businesses as much as $7 billion. During those same two years, states would be forgiven from paying the $1.3 billion in interest they owe Washington on the money they have borrowed. The stimulus bill provided a grace period, but it expired last year.
In 2014, when the economy will presumably have recovered somewhat, employers will have to make up for the moratorium by paying higher unemployment taxes to the states. Specifically, they will have to pay taxes on the first $15,000 of an employee’s income, instead of the current $7,000. But, even then, unemployment taxes will be at the same level, adjusted for inflation, as they were in 1983, when President Ronald Reagan raised them.
The administration is proposing to cut the federal unemployment tax rate in 2014 so that employers would pay the same amount to Washington as they do now. States, if they choose to do so, could collect more from each employer to repay the federal government and restock their own unemployment trust funds.
Republicans immediately derided the proposal as an irresponsible tax increase. On his blog, Representative Eric Cantor, the House majority leader, criticized the higher taxes in 2014, but he did not mention the two-year moratorium on the automatic tax increases in 20 vulnerable states.
The proposal is not a bailout for the states or employers but rather a recognition that the automatic tax increases built into the benefits system could put a brake on hiring — and in precisely the states where employers need the most incentive to bring people back to work.
Over the next decade, as more people return to work and the states repay their debt more quickly, the proposal is expected to bring more dollars back to the federal government than the temporary moratorium will cost, so the long-term effect on the deficit should be positive. The full details of the plan’s costs and benefits will be available when President Obama submits his 2012 budget to Congress next week. When he does, both parties should take a close look at the numbers and seize the opportunity to keep this fundamental safety net solvent.
