President Obama’s upcoming budget proposal for fiscal year 2012 is expected to have some nips and tucks — a federal pay freeze, non-defense discretionary spending freeze, an earmark ban — but it’s not going to be unadulterated austerity. One area where the White House continues to show willingness to spend is aid to states struggling to balance their budgets in wake of a recession that cleaned them out.
By proposing to enlarge the pool of wages subject to unemployment taxes, the White House appears to be offering states a more politically palatable way to raise revenues than to boost tax rates. States could keep the tax rates they have, or even lower them somewhat, and still raise considerably more revenue than they are raising now.
Now the New York Times is filling out the story a bit. Obama and company will propose putting off the collection of interest from states who borrowed federal dollars for jobless benefits during the recession. That would take some weight off their budgets while they keep the unemployment aid flowing and prevent an automatic tax increase on employers for two years. The higher revenues in 2014 would then help states pay the feds back.
Bear in mind: All of this would require congressional approval. As it’s been in the past, Republican governors from seriously underwater states seem politically key here. Get them on board, dangle the tax moratorium in front of GOPers on the Hill, and the White House might be able to get the plan through.