Skip to: Content
Skip to: Site Navigation
Skip to: Search

Unemployment 101: Who pays for jobless benefits, anyway?

Employers pay state and federal taxes to cover all those unemployment checks. But with unemployment at 9 percent, those taxes aren't enough, leaving some states in dire straits.

(Page 2 of 2)

In 2014, Mr. Obama would deepen the wage base on which employers pay for unemployment. Currently, companies pay their federal unemployment tax on the first $7,000 of each employee’s salary. That rate has been the same since 1983, when Ronald Reagan was president. Obama is expected to ask that the base level for the tax be raised to $15,000, or about where it would be if it were adjusted for inflation. Because states are required to set their wage bases at least at the federal level, the increase would mean that states with wage bases of less than $15,000 would have to increase them to at least that level.

Skip to next paragraph

Won’t that be a tax increase?

It could be. Each state would have the option to adjust the rate that companies in their state pay. A state could actually cut the rate, if its unemployment fund became solvent as the economy recovered.

How much do companies currently pay?

The average state unemployment insurance (UI) tax in 2008 was $274 per employee, according to CBPP.

The basic federal tax is $56 per employee, but this will start increasing in $21-per-employee increments over the next two years, if no action is taken by Congress.

Are there other plans?

Yes. On Wednesday, the CBPP proposed a gradual increase in the wage base, a moratorium on state interest payments on their UI loans, and a postponement for two years on the federal tax increases currently mandated to repay the loan principal.

Also on Wednesday, the Center for American Progress think tank proposed that the US government forgive loans to states that have borrowed to keep their unemployment insurance systems solvent. It proposes rewarding states that have maintained positive balances. In addition, the center's plan would increase the federal government’s role during times of high unemployment and reduce the wide disparity in eligibility rules and benefits across the states.

Do the Republicans have a plan?

House majority leader Eric Cantor of Virginia suggests immediately suspending the federal unemployment tax, to save employers $56 per worker per year.

This would cost $7 billion a year. “With the spending we are cutting, I don’t think finding offsets is a problem,” says Brendan Buck, a spokesman for House Speaker John Boehner of Ohio.

Republicans would also require that people receiving unemployment checks work in a part-time job for a six-week trial period. Cantor says this results in faster returns to work and fewer unemployment payments, thus lowering state unemployment taxes.

What is the likelihood Congress will approve Obama’s plan?

Republicans now control the House of Representatives, and some of their key leaders have already said they oppose the Obama plan. In the Senate, Sen. Orin Hatch (R) of Utah is opposed to the plan, calling it "job-destroying."

RELATED: Job market's still tough. Seven ways to reenergize your job search.


Read Comments

View reader comments | Comment on this story