Meanwhile, many states impose their own “solvency fees” on employers to cover the cost of interest payments on the debt. In Michigan, which owes Washington $3.7 billion, the second-highest debt after California, employers paid an extra $21 per worker last year, a figure set to double in 2011.
“At a time when that money could be better used to stimulate the economy, this is what employers are facing right now here in Michigan,” said Melanie Brown, spokeswoman for the Michigan Unemployment Insurance Agency.
Under Obama’s proposal, employers would be relieved of the burden of paying interest in 2011 and 2012. But in 2014, when many analysts expect the economy will have recovered fully, Obama calls for increasing the taxable wage base, requiring states to tax the first $15,000 of each worker’s wages.
The change would have no impact on federal tax collections because Obama would adjust the federal tax rate downward. But in 32 states where the wage base is less than $15,000, state legislatures could reap a windfall simply by keeping tax rates the same.
Brookings Institution economist Gary Burtless said the proposal “should be very popular with state legislators and governors,” who have been reluctant to raise taxes on employers during hard economic times — even though the $7,000 wage base has been unchanged since 1983.
The administration’s proposal offers a “nice sleight of hand,” Burtless said, noting that lawmakers in many states could choose to lower rates even as they collect more money by expanding the portion of wages subject to the tax.
“Most economists believe it’s better to have a higher tax base and a lower rate,” he said.