Obama plan would ease state debts through payroll taxes

An Obama administration proposal would ease the debts of states struggling to pay unemployment benefits by increasing the amount of payroll taxes collected from businesses.

The proposal, reportedly to be included in the president’s budget next week, has the potential to provide relief to the states that might otherwise be tempted to seek a federal bailout. At the same time, word of the plan comes a day after President Obama extended an olive branch to businesses in a speech before the U.S. Chamber of Commerce, which is unhappy with the corporate tax structure.
 
With the unemployment rate at more than 9 percent, 30 states have had to borrow a total of $42 billion from the federal government to help their out-of-work residents. "Ultimately, the states are going to need to repay their debts, and we're not going to want to bail them out," said an anonymous administration official quoted in The Washington Post.
 
Under the plan, a moratorium would be placed on employer tax increases and interest payments on the debt to the federal government through 2013. Starting in 2014, Obama wants to double the portion of worker wages subject to the unemployment tax, from $7,000 to $15,000, the Post reported.
 
The official said that if Congress adopts the plan, 28 states could repay over the next decade. Only 13 are expected to repay under the existing system. Starting this fall, the federal government is scheduled to charge interest, as much as $1.3 billion, on the $42 billion borrowed, The New York Times reported.
 
Employers pay both state and federal unemployment taxes. Under the new plan, states would be able to collect up to $100 billion more over a decade, the source said. That would give states the money to pay back their federal debts. The federal government would adjust its unemployment tax rate so businesses wouldn’t see an increase on the federal side.
 
The plan would reduce federal revenues in the short run, which means it may run into opposition from Republicans in Congress. On the other hand, some say, a tax moratorium might be appealing.
 
The debt already has triggered automatic state tax increases on employers in Michigan, Indiana, and South Carolina. Forty states raised unemployment-insurance payroll taxes last year to boost revenue, The Wall Street Journal reported. The Journal also said that the White House proposal “appears to be offering states a more palatable way to raise revenues than to boost tax rates.”
 

Related articles:

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
The Republican-controlled House of Representatives passed a bill on Friday morning that would permanently extend the bonus depreciation tax break for businesses.The measure, HR 4718, which was crafted by Representative Pat...
The Republican-led House of Representatives is expected to pass a bill this week that would permanently extend the bonus depreciation tax break. But don’t expect President Obama to sign it.The Obama administration said...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.