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White House budget to give states relief

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Kai Ryssdal: Picking up on that bit about the budget being on an unsustainable path, President Obama releases his budget next week. Spending is out, austerity is in, for the most part.

The White House plan is said to include a provision to help states keep on paying unemployment benefits. Might be nice for now, but may be trouble down the line. Marketplace’s John Dimsdale reports.

John Dimsdale: Employers pay state and federal taxes to fund unemployment benefits. But this recession, states borrowed from the federal government to come up with enough money. Now they have pay back the loans. The Obama budget would delay those payments for two years. After that, state governments could double the tax on employers to build up their insurance funds.

Gary Burtless at the Brookings Institution says with 9 percent unemployment, delaying the pain is the right trade-off.

Gary Burtless: It doesn’t seem like a good time to increase the tax penalty on employers when they add someone to their payroll.

The president’s budget idea is similar to what the Center on Budget and Policy Priorities recommended today. The Center proposes to forgo state unemployment reimbursements for two years, but to gradually raise the taxes on employers to pay for unemployment insurance. The Center’s Iris Lav says states are in a tough spot.

Iris Lav: In this recession, they have to pay back those funds that they borrowed and they have to prepare for the next recession so they won’t just be borrowing continuously. In order to do that, somewhere, somehow, tax rates have to go up.

But there’s no guarantee things will be better in two years, says Gary Burtless.

Burtless: If the economy is still in the tank, the president who holds office then can make the same recommendation to defer for another couple of years.

That would only increase federal deficits. Eventually, he says, revenues have to come in to keep unemployment benefits flowing.

In Washington, I’m John Dimsdale for Marketplace.

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