Obama proposes halt on state unemployment insurance debt

In an attempt to curb unemployment insurance debt, the Obama Administration is proposing relief to states with large amounts of debt stemming from fulfilling unemployment insurance obligations, according to a Feb. 7 report by the Associated Press.

With unemployment reaching 9.8 percent in January, some states have accumulated $42 billion in debt owed to the federal government, borrowed to pay state unemployment insurance claims, according to the AP.

As a result of such massive debt, at least 20 states are preparing to increase their state income tax.

Under current federal law, once state unemployment insurance debt reaches a certain level, state income taxes automatically increase.

The Obama Administration’s proposal will put a hold on all state debt related to unemployment insurance through 2012, which would prevent states from having to increase income taxes, according to the AP report.

Another stipulation of the proposal states that beginning in 2014, there will be an increase in the taxable income level for unemployment insurance from $7,000 to $15,000, according to the AP.

While this would lead to an adjusted federal unemployment insurance rate in order to avoid a federal tax increase, state unemployment insurance rates would remain the same, the AP reported.