President Obama's budget proposal to Congress includes a recommendation that the federal taxable wage base be increased from $7,000 to $15,000, beginning in 2014. The taxable wage base would be indexed for inflation after 2014. The taxable wage base has been $7,000 since 1983. In addition, the budget proposal would lower federal unemployment tax rates in 2014 so employers' federal unemployment tax liability would not increase. The budget proposal would also suspend interest payments on loans from the federal government to the states for two more years. States were not required to pay interest on federal loans in 2009 and 2010. Thirty-one states have borrowed money from the federal government to help fund their unemployment insurance (UI) programs.
The budget proposal is designed to help states build up their unemployment trusts funds, which have been depleted in recent years due in large part to the poor economy. The President hopes that the federal unemployment tax relief offered to states in the budget will keep them in the short run from having to impose additional taxes on employers, which undermines job creation. In addition, the President believes that the budget proposal would encourage states to put their UI systems on firmer financial footing so they can pay back their debts to the federal government and better respond to future economic conditions [Office of Management and Budget, Budget of the United States Government, Fiscal Year 2012].
Thirty-four states, the District of Columbia, and Puerto Rico currently have taxable wage bases lower than $15,000. They would have to raise their taxable wage bases to at least $15,000 in 2014, if they wanted to receive the maximum federal unemployment tax (FUTA) credits against the FUTA tax.
Several members of Congress have already expressed their concerns about the proposal. House Ways and Means Committee Chairman Dave Camp (R-MI) said that we “need to reform our unemployment programs, but any plan that relies on more than doubling the tax base and then continuing to raise payroll taxes in perpetuity isn't going anywhere in the House. Employers are demanding reforms to the unemployment program, not higher taxes on job creation” [Committee on Ways and Means Press Release, Camp, Davis Respond to Administration's Unemployment Insurance Tax Hike Proposal, 2/8/11].
Ranking member of the Senate Finance Committee Orrin Hatch (R-UT) said that an increase of the taxable wage base from $7,000 to $15,000 would either leave employers with less money to hire, or force workers to accept lower wages [Senator Hatch Press Release, 2/8/11].
The entire budget proposal is on the Office of Management and Budget's website.