States owe $30 billion in outstanding loans to feds

Already struggling to cut budgets and pay for services like health care and education, nearly half of the 50 states owe Uncle Sam millions or even billions in outstanding loans.

Twenty-two states and the U.S. Virgin Islands owe the federal government more than $30 billion after borrowing to pay out unemployment benefits.

Over the past three years, states have exhausted their unemployment insurance trust funds as they paid out benefits to the large number of unemployed Americans, who can get up to 99 weeks of unemployment benefits in some states.

“Between 2008 and 2011, $174 billion was paid in unemployment taxes while $450 billion was paid out in benefits, a gap of $276 billion,” according to an article by Joe Henchman, a vice president at Tax Foundation, a nonprofit and nonpartisan tax research organization based in Washington, D.C.

Unemployment insurance is jointly run by the federal government and the states, and employers and employees pay taxes to both federal and state governments. The program is administered by the states while the federal government reimburses the states for administrative expenses. When unemployment is high, benefits are extended, and states unable to pay benefits out of their reserves may borrow from the federal government to do so.

States aren’t expected to pay back these loans for several years, but businesses and employees in many states now face increases in their federal unemployment insurance tax rates because of them.

“This tax is ostensibly levied at a 6.0 percent rate on the first $7,000 of each worker’s earnings, but if a state’s program meets federal guidelines, state UI [unemployment insurance] taxes are credited against up to 90 percent of the federal tax,” Henchman wrote.