White House: Jobless aid plan

By JIM KUHNHENN Associated Press

WASHINGTON (AP) - The White House said Tuesday an Obama administration proposal that gives states a chance to raise more unemployment insurance taxes from businesses will force states to make tough decisions between lower assistance for the jobless or higher taxes on employers.

In its budget proposal next week, the administration plans to recommend short-term relief to states saddled with unemployment insurance debt, together with a delayed increase in the income level that is subject to state jobless insurance taxes paid by employers. The plan would raise that income level from $7,000 to $15,000 in 2014.

White House spokesman Robert Gibbs said the administration's plan "would help states make up for the shortfalls they have, and give them time, as I said, to rationalize what they offer and how they pay for it."

Congress would have to approve the recommendation.

Rising unemployment has placed such a burden on states that 30 of them owe the federal government $42 billion borrowed to meet their unemployment insurance obligations. Three states already have had to raise taxes to begin paying back the borrowed money. More than 20 other states likely would have to raise taxes to cover their unemployment insurance debts. Under federal law, such tax increases are automatic once the money owed reaches a certain level.

Unemployment insurance programs are run by state governments and are paid for by the state and federal government through a tax paid by employers. States determine their benefit amounts and eligibility. Unemployment benefits vary from state to state.

The administration's proposal could result in higher employer taxes, but Obama's plan could also force states to rethink who gets benefits and what benefit amounts are paid.

In the short term, the proposal would impose a moratorium in 2011 and 2012 on state tax increases and on state interest payments on the money borrowed from the federal government.

Still, the proposed increase in income levels subject to the tax raises the prospect of business tax increases in 2014, just as President Barack Obama is trying to court business leaders with pledges of removing uncertainty from the private sector. The federal portion of the unemployment insurance tax rate would be reduced so that it wouldn't result in a federal tax increase.

Asked whether it was inevitable that states would raise taxes to address their strained jobless aid programs, Gibbs said the choice rests with the states. "You cannot continue to offer something at a state level, right, that is not ultimately supported by the base with which you're funding it."

The joint federal-state unemployment insurance program has been strained during the past two years. States must provide 26 weeks of benefits to the unemployed, a responsibility that has depleted many state funds and has forced them to borrow from the federal government.

Republicans pounced on the plan as ill advised.

"Jobs are destroyed - not created - by raising taxes on American employers," said Brendan Buck, a spokesman for House Speaker John Boehner. "Rather than doubling down on his job-crushing agenda, the President should work with Republicans to reduce economic uncertainty and create jobs by cutting spending and preventing any new tax hikes."

The thrust of the administration's argument is that federal taxes would not increase and that the move is fiscally prudent because the federal government ultimately would be repaid by states at a faster pace than if it did nothing.

A person familiar with the plan, who described in on the condition of anonymity because the budget was not completed, said only 13 of the 30 states that owe the $42 billion would be expected to repay their share of the money in the next nine years under current conditions. The administration's proposal would allow 15 more states to repay the money, this person said.