President Obama is proposing to come to the rescue of states that face a crushing debt burden after borrowing billions from the federal government to pay unemployment benefits during the recession.http://thecaucus.blogs.nytimes.com/2011/02/08/obama-wont-press-states-to-repay-unemployment-debt/?ref=politics
In the 2012 budget he is scheduled to unveil next week, Mr. Obama will defer collecting interest payments on the debt, so states can avoid raising taxes on employers to pay for jobless benefits, according to a person familiar with the plan, who spoke on condition of anonymity because it is not yet final....
...Mr. Obama’s plan, which would require the approval of Congress, could run into opposition from Republicans who ran for office vowing to cut government spending and therefore might resist any effort that would reduce federal revenues. But those same lawmakers could also face pressure from Republican governors, who like their Democratic counterparts are scrambling to figure out a way to pay Washington when the federal bill collectors start knocking at the door....
...Currently, according to the person who described the administration’s plan, 30 states have borrowed a total of $42 billion from the federal government to pay their share of benefits.
The debt has triggered automatic tax increases for employers in a number of states. Three states – Michigan, Indiana and South Carolina – have already seen their rates rise, and another 20 states are scheduled to see tax rates go up over the next year.
Under Mr. Obama’s proposal, the administration would impose a moratorium in 2011 and 2012 on both the state tax increases and the interest payments on the debt.
Then, in 2014, to bring that money back into the federal coffers, the administration proposes to raise the minimum level on which employers pay taxes from $7,000 of earnings to $15,000, giving the states the cash they need to cover their debt to Washington.
The administration is betting that the proposal might appeal to Republicans because it involves a tax moratorium. According to the person familiar with it, the White House has calculated that if the plan is adopted, only two states would still owe money to the federal government after a decade. But if the plan is not adopted, this person said, 17 states would still be in debt to Washington.