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.
The Obama administration is trying to change the way the unemployment insurance system is funded.
The administration claims that its plan – to be unveiled when President Obama proposes his 2012 budget on Monday – prevents a tax increase on business and helps cash-strapped states.
Republicans call it a "job-destroying” tax hike on business and a bailout for states that are overly generous with their jobless benefits. Here are some fundamental questions and answers concerning how the unemployment insurance system works.
What’s behind this battle?
At the moment, employers pay a state tax for each employee. The money pays for all those state-issued unemployment checks – the first 26 weeks of them, anyway.
Employers also pay a per-employee federal tax, which funds administrative costs of implementing the system.
But because the unemployment rate – now at 9 percent – has remained relatively high for so long, 30 states have exhausted their funds and have had to borrow $41 billion from Uncle Sam. The biggest borrowers are California, Michigan, New York, Pennsylvania, and Illinois.
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