State bailout on unemployment insurance?

posted at 11:36 am on February 9, 2011 by Ed Morrissey

The extensions of unemployment benefits forced states to borrow money from the federal government to keep from making their own budget crises even worse over the last two years.  Now the Obama administration wants to allow states to suspend interest payments for the next two years to keep them from raising taxes on businesses that would strangle the economy.  But the timing of this move, and Barack Obama’s plans to recoup the money, should have people leery about this proposal:

States that have borrowed billions of dollars from the federal government to cover the soaring cost of unemployment benefits would get immediate relief from the Obama administration under a plan to suspend interest payments for the next two years.

The proposal, which will be included in the budget request President Obama will send to Congress next week, would allow states to avoid raising taxes on employers to cover the payments – which are projected to total $3.6 billion through 2012, according to independent estimates.

Obama also would suspend automatic hikes in the federal unemployment tax scheduled to hit employers in nearly half of the states by the end of next year.

So far, so good, right?  States can put off the interest payments for a couple of years, and businesses already facing tough times won’t have to worry about higher tax burdens in a recessionary environment.  However, you know there’s a big but coming … right?  Right:

But starting in 2014, Obama would target companies for sharply higher payroll taxes to help states replenish their depleted unemployment funds and repay their debts to Washington.

The actual mechanism will be a raise in the taxable base rate for employers on payroll tax for unemployment insurance, which the federal government sets at a minimum of $7,000.  That would increase to $15,000 in states that have become delinquent in repayments, which would allow the states to reap a larger windfall from employers — at least those states that don’t already have a higher taxable base already.

Supposedly, the federal government would lower its own payroll-tax rate to make this closer to revenue neutral for businesses.  But all that means is that the federal government is conducting a shell game to bail states out again, this time over a longer period.  That extra revenue would then promptly return to the federal government, but only after passing through the state bureaucracies first.  Why not just collect it directly, if that’s the end result anyway?  Wouldn’t that be more efficient?

Basically, this is a dodge to allow Obama to declare that he’s cutting business taxes while the overall impact on employers will be to increase their tax burden.  It also provides yet another back-door bailout to states that refuse to seriously address their budget chronic and structural budget problems.  And notably, it makes sure that the bill doesn’t come due until well after the 2012 election cycle.


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Didn’t the feds just pass an unemployment extension? A mere 99 weeks of drawing unemployment funemployment was just too short. /s

trs on February 9, 2011 at 11:40 AM

The Bamster’s 25th tax increase?

slickwillie2001 on February 9, 2011 at 11:42 AM

These states are nothing but wh*res.
Let them sink.

Badger40 on February 9, 2011 at 11:42 AM

But all that means is that the federal government is conducting a shell game…

It’s under the shell that has the WTF logo on it.

Yoop on February 9, 2011 at 11:44 AM

OT:Another seat gone in senate for Dems

ConservativePartyNow on February 9, 2011 at 11:44 AM

Didn’t Enron executives go to jail for this sort of shenanigans?

rbj on February 9, 2011 at 11:46 AM

Why don’t the feds just cut our throats now instead of 2 years from now. This death by a thousand cuts sux.

Kissmygrits on February 9, 2011 at 11:46 AM

State Projected FY 2012 shortfall
(in millions of dollars)

California $21,300
Illinois 17,000
New Jersey 10,500
Texas 10,000
New York 8,200
Connecticut 3,800
Minnesota 3,800
North Carolina 3,000
Ohio 3,000
Florida (tie) 2,500
Oregon (tie) 2,500

How many Blue states do we have on that list?

Knucklehead on February 9, 2011 at 11:48 AM

Either the GOP decides to find sanity and actually does something about this, all of the economic “this”, or we’re done.

Of course looking at the feeble lineup representing us in Congress I don’t have much faith. Jeebus. We’re screwed.

Bishop on February 9, 2011 at 11:48 AM

Shell game.

The man is a con artist to the core.

petefrt on February 9, 2011 at 11:48 AM

Back door financial aid to the most troubled states with high deficits and high unemployment (Calisomethingorother), designed to simply get Obama past 2012 and worry about the problem later, by allowing his big Blue States to stave off possible insolvency/bankruptcy for three more years.

However, if I were the governor or other top elected officials of those states and I saw that the plan had the bill coming due in 2014, when they’re the ones up for re-election, I’d also be a little wary of the plan, since it has all the trappings of asking you to lie down in the street for the next few years while Barack warms the “Obama/Biden ’12″ re-election bus up to keep rolling right over you two more years down the line.

jon1979 on February 9, 2011 at 11:48 AM

States that have borrowed billions of dollars from the federal government China

RedRedRice on February 9, 2011 at 11:48 AM

Any indication yet from the House GOP if they’re gonna go along with this? Also, even if this passes, the states still need to deal with their budget deficits resulting from overspending and badly needed pension reform, right?

Doughboy on February 9, 2011 at 11:49 AM

Knucklehead on February 9, 2011 at 11:48 AM

Don’t you worry about Minnesota, we have the inbred psychopath Mark Dayton as our governor and he has it all figured out.

Why just today he let Minnesota know how things will be fixed by saying, “It’s not whether or not taxes will go up, they will, the question is on whom and that is the rich.”

Bishop on February 9, 2011 at 11:51 AM

Kicking the can beyond election.

the_nile on February 9, 2011 at 11:54 AM

There was a time in this country where this might have been the last straw before a shooting war broke out.

You know, between different sections of the country – the payers v. the payees.

Akzed on February 9, 2011 at 11:54 AM

Why just today he let Minnesota know how things will be fixed by saying, “It’s not whether or not taxes will go up, they will, the question is on whom and that is the rich.”

Bishop on February 9, 2011 at 11:51 AM

“Hey rich, why are you leaving”….

the_nile on February 9, 2011 at 11:55 AM

Wait a sec.

The extensions of unemployment benefits forced states to borrow money from the federal government to keep from making their own budget crises even worse over the last two years.

Are we talking about unemployment benefits the Federal Government extended by law? If so, it’s already a shell game, not an upcoming one. And again, if so, WTF are the Feds doing charging interest on the money loaned to pay for benefits the state has to dole out because the Feds forced them to?

However, is these extensions of unemployment benefits were enacted by various states, why should those states that had their fiscal houses in order and didn’t need the loans or didn’t need as much, getting screwed AGAIN?

Dusty on February 9, 2011 at 11:57 AM

Ed: You’re using the libmedia’s tactics. You buried the headline in the last sentence.

And notably, it makes sure that the bill doesn’t come due until well after the 2012 election cycle.

kevinkristy on February 9, 2011 at 11:57 AM

Don’t you worry about Minnesota, we have the inbred psychopath Mark Dayton as our governor and he has it all figured out.

Why just today he let Minnesota know how things will be fixed by saying, “It’s not whether or not taxes will go up, they will, the question is on whom and that is the rich.”

Bishop on February 9, 2011 at 11:51 AM

Our idiot Governor in Illinois already figured it out for us when he passed a 66% income tax increase in the dark of night, 8 hours before the lame duck session ended. Of course he made no budget cuts.

Knucklehead on February 9, 2011 at 11:59 AM

It’s time to start phasing out the current system. I personally favor setting up a system like the 401K system. Both you and the company put money into an interest bearing account, it’s transportable, and if you don’t use it, it’s yours when you retire.

Oh wait! That means the government won’t be able to loot it.

evilned on February 9, 2011 at 11:59 AM

why should those states that had their fiscal houses in order and didn’t need the loans or didn’t need as much, getting screwed AGAIN?

Dusty on February 9, 2011 at 11:57 AM

Spread the wealth…

the_nile on February 9, 2011 at 11:59 AM

States like California which actively pursue policies that chase jobs and investment out of their state go begging to the Feds to subsidize their bankrupt agencies. In effect they want the rest of the US to bankroll their BS policies. Let them sink and then they can change their policies. The rest of us should turn our backs and say too bad.

Kuffar on February 9, 2011 at 12:05 PM

Con artist-in-chief

Kool-aid drinkers. Wake up!

cmsinaz on February 9, 2011 at 12:06 PM

[the_nile on February 9, 2011 at 11:59 AM]

Well, yeah, it was a rhetorical question. But I think the core issue is that I am right wrt to the first part, that is, the Fed dumped a mandate on the States and are charging them interest on money borrowed to pay for it. It’s insane.

I’ll tell ya, somewhere in the Federal budget there is a line item that includes the interest the states owe the Feds and it is in the assets column, that, somehow, magically reduces the deficit the Feds show on paper.

Dusty on February 9, 2011 at 12:11 PM

Gov Palin was on foxbusiness last night talking about this issue with Eric bolling:

http://texas4palin.blogspot.com/2011/02/sarah-palin-system-is-broken.html

unseen on February 9, 2011 at 12:11 PM

Temporary tax cuts and rebates that require payback. oops/

maverick muse on February 9, 2011 at 12:16 PM

Temporary tax cuts and rebates that require payback. oops/

maverick muse on February 9, 2011 at 12:16 PM

It’s worse the paybacks never go away even after the rebates and tax cuts are paid for. this is a permanant tax increase

unseen on February 9, 2011 at 12:17 PM

The Republican House had BETTER NOT vote this through or THEY ARE THROUGH !

stenwin77 on February 9, 2011 at 12:18 PM

And notably, it makes sure that the bill doesn’t come due until well after the 2012 election cycle.

What a coincidence! And Barry doesn’t give a rat’s ass for who might want to run in 2016 for the Democrats. It’s all about Barry all the time.

GarandFan on February 9, 2011 at 12:19 PM

Are we talking about unemployment benefits the Federal Government extended by law? If so, it’s already a shell game, not an upcoming one. And again, if so, WTF are the Feds doing charging interest on the money loaned to pay for benefits the state has to dole out because the Feds forced them to?

Dusty on February 9, 2011 at 11:57 AM

When I read this aritcle, I thought the same thing. What is really needed are governors and their state’s attorneys general willing to take a stand against these unfunded mandates. I would have really like to have seen Perry or Jindal stand up and say, “Pay for your mandate, Congress, or shove it.” Now they’re going to have to be at the mercy of Obama’s whims.

JSGreg3 on February 9, 2011 at 12:19 PM

NO, NO, NO. Game over. Stop. No mas.

I live in Texas and we are on the list, but I say NO – stop making the problem worse by putting off the day of reckoning. The seas are boiling, the skies are falling and dogs and cats are living together … stop it now.

Over50 on February 9, 2011 at 12:21 PM

Obama wants to turn unemployment insurance into a permanent form of welfare.

tommyboy on February 9, 2011 at 12:23 PM

unseen on February 9, 2011 at 12:17 PM

But of course.

maverick muse on February 9, 2011 at 12:29 PM

kevinkristy on February 9, 2011 at 11:57 AM

Yep. This is nothing but an election season buy-off and should be reported as such. Palin should call him out on it.

Missy on February 9, 2011 at 12:29 PM

State Projected FY 2012 shortfall
(in millions of dollars)

California $21,300
Illinois 17,000
New Jersey 10,500
Texas 10,000
New York 8,200
Connecticut 3,800
Minnesota 3,800
North Carolina 3,000
Ohio 3,000
Florida (tie) 2,500
Oregon (tie) 2,500

How many Blue states do we have on that list?

Knucklehead on February 9, 2011 at 11:48 AM

Not many, which is the point of this bumbling administration.

They are setting up a waiver to states … for votes.

Considering the implosion on the left, 2010 House and local election results… Dems are shooting for the moon via state payola and unemployment benefits. By providing money, with little recourse – or expectation that it will be factored into State budgets… or even TALKED ABOUT IN THAT MANNER will ensure a fmailiar liberal band aid called “I’ll pay Tuesday for my hamburger today” Rinse and repeat.

Most state budgets dont even pass on time, as required by their own state constitutions – assuming they will factor in a 2 year out interest payment is flat out crazy.

So – Bambi throws money at states, to buy votes, position themselves as “helping the economy” (you know through unemployment, per Ms Pelosi) and “helping everyday people” just when the majority of these states unemployment folks are teetering on 90 weeks…

This ploy has worked for Dems and liberals for over 100 years now.

Odie1941 on February 9, 2011 at 12:30 PM

unseen on February 9, 2011 at 12:17 PM

But of course.

/comments being snagged online

maverick muse on February 9, 2011 at 12:30 PM

Wouldn’t that be more efficient?

haha. This is government we are talking about, lets not ask such silly questions.

There has to be waivers for sale in there somewhere

tommer74 on February 9, 2011 at 12:34 PM

Death by a thousand cuts taxes…

PatriotRider on February 9, 2011 at 12:45 PM

Saaaaay, what’s tha quickest way to get rid of states so that you don’ts have the competition for power?

It wouldn’t be to issue mandates and throw them a little candy and bankrupt them would it?

Naaaaaah, couldn’t happen.

PappyD61 on February 9, 2011 at 12:51 PM

Our GOP “represntatives (in name only) better bury this one, or we will bury them in 2012. There are other conservatives to put in their seats.

ultracon on February 9, 2011 at 12:52 PM

Can someone explain this to me? The WSJ yesterday had Obama’s proposal and then in a sidebar had ” How unemployment taxes work”. This is a quote from that part:

Who sets the federal unemployment tax rate?
The federal government sets the rate for its tax — the tax that is set to change under the President’s proposed budget. That rate has been 6.2% on the first $7,000 of each worker’s wages since the 1980s. In most cases employers receive a credit that offsets much of that tax rate, lowering it to 0.8%, or $56 a year per employee.

Why raise it from 7 to 14K? Why not just reduce the credit that a business receives back (from what they paid) Why play all these games? I don’t get it.

journeyintothewhirlwind on February 9, 2011 at 1:07 PM

It’s time to start phasing out the current system. I personally favor setting up a system like the 401K system. Both you and the company put money into an interest bearing account, it’s transportable, and if you don’t use it, it’s yours when you retire.

Oh wait! That means the government won’t be able to loot it.

evilned on February 9, 2011 at 11:59 AM

I was venting to my wife while working on taxes. I pointed out that we paid over $6K into Social Security last year (and even she knows we won’t see any of it), she was livid.

dominigan on February 9, 2011 at 1:56 PM

To reform Social Security, our conservative Reps should point out that with 401Ks, we can leave the proceeds to our families if we die prematurely… unlike Social Security.

And in times of need, you can also take out loans against it… which you cannot do with Social Security.

And if you are unhappy with the rate of return, you can change your mix of funds… which you cannot do with Social Security.

And if you are happy with the rate of return, you can invest more to realize more return… which you cannot do with Social Security.

And to compete for employees, employers will sometimes match some of your investment providing you with even more return!… which doesn’t happen with Social Security.

Why again did I pay over $6K into a defunct black hole last year?

dominigan on February 9, 2011 at 2:03 PM

This is another bonehead play by ODumbAss. He just keeps attacking the private sector and the private sector continues to contract.

Every time he says “tax increase”, they gag and lay people off.

dogsoldier on February 9, 2011 at 2:47 PM

dominigan on February 9, 2011 at 2:03 PM

If instead of paying into health insurance we could all bank that money that would have gone for premiums, can you imagine how much money you would have in your fifties to pay your own bills, or if you are healthy, to add to your retirement?

Go uninsured!

slickwillie2001 on February 9, 2011 at 4:42 PM

Why is the federal government in the Unemployment Insurance Business anyway?

Canadian Imperialist Running Dog on February 9, 2011 at 6:57 PM