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updated 2/8/2011 1:34:41 PM ET 2011-02-08T18:34:41

The White House says a proposal that gives states an opportunity to collect more unemployment insurance taxes from businesses in 2014 will force states to "rationalize" what jobless assistance they offer and how they pay for it.

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White House spokesman Robert Gibbs says the economic downturn has placed heavy pressure on states, many of which have had to deplete their unemployment insurance trust funds. The administration is recommending that, starting in 2014, the taxable income levels used to tax businesses for the jobless assistance would increase from $7,000 to $15,000.

The plan would also impose a moratorium on state unemployment insurance tax increases through 2012. Gibbs said states shouldn't be increasing taxes as the recovery remains fragile. He rejected suggestions that the plan amounted to a bailout of states.

The administration plans to include the proposal in its budget plan next week.

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Rising unemployment has placed such a burden on states that 30 of them owe the federal government $42 billion in money borrowed to meet their unemployment insurance obligations.

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Three states already have had to raise taxes to begin paying back the money they owe. More than 20 other states likely would have to raise taxes to cover their unemployment insurance debts. Under federal law, such tax increases are automatic once the money owed reaches a certain level.

Video: Obama extends olive branch to biz leaders (on this page)

Terms of the proposal
Under the proposal, the administration would impose a moratorium in 2011 and 2012 on state tax increases and on state interest payments on the debt.

In 2014, however, the administration proposes to increase the taxable income level for unemployment insurance from $7,000 to $15,000. Under the proposal, the federal unemployment insurance rate would be adjusted so that the new higher income level would not result in a federal tax increase, the person familiar with the plan said.

States, however, could retain their current rates, meaning employers could face higher unemployment insurance taxes beginning in 2014.

Though the administration could face criticism for enabling states to increase taxes, the thrust of the administration's argument is that federal taxes would not increase and that the move is fiscally prudent because the federal government ultimately would be repaid at a faster rate than if it did nothing.

The person who described the plan said only 13 of the 30 states that owe the $42 billion would be expected to repay their share of the money in the next nine years under current conditions. The administration's proposal would allow 15 more states to repay the money, this person said.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Obama extends olive branch to biz leaders

  1. Closed captioning of: Obama extends olive branch to biz leaders

    >> is holding a series of closed door meetings at the white house today after spending monday trying to mend fences with big business and his critics. nbc's white house correspondent savannah guthrie has details. good morning.

    >> reporter: good morning to you, meredith. with the president set to send his budget to congress next week there are big battles looming over the nation's debt, an issue he took on on fox news last night.

    >> we've got to make some tough decisions.

    >> reporter: in the second part of his interview with bill o 'reilly the president fended off a suggestion he brought no urgency to the debt crisis in his state of the union address .

    >> we are proposing to cut $400 billion of spending over five years. by doing that we will get domestic spending to the lowest level as a share of gdp since eisenhower.

    >> reporter: mr. obama acknowledged the biggest part of the debt is entitlement spending and said neither party is going to be able to fix it alone.

    >> the long-term problem is entitlements, social security , medicare, medicaid. i have said to republicans i want to work with you to figure out how we cut spending.

    >> reporter: the president's comments came on a day when he extended an olive branch to the business leaders at the chamber of commerce . taking steps by walking to the chamber building just a block from the white house to try to repair what's often been a rocky relationship on issues such as health care and financial regulation .

    >> if we have brought over a fruit cake when i first moved in, we would have gotten off to a better start.

    >> reporter: fighting a perception he's anti-business --

    >> i understand the challenges you face. i know you share my enthusiasm. if there is a reason you don't share my confidence, i want to fix it.

    >> reporter: the president promised to eliminate burden from regulation while defending the need for some government intervention .

    >> not every regulation is bad. not every regulation is burdensome on business.

    >> reporter: a somewhat different tone from comments he made to ceos a year ago.

    >> if they wish to fight common sense consumer protections, that's a fight i'm more than willing to have.

    >> reporter: on monday mr. obama called for a cut in corporate taxes and urged executives to get in the game with a kennedy-like call to action to invest in america.

    >> winning the future is not just about what the government can do for you to succeed. it's also about what you can do to help america.

    >> reporter: well, the president will be behind closed doors for most of the day. but the vice president will be at the amtrak station in philadelphia talking about the need to improve the nation's infrastructure. one of the issues that the chamber of commerce and the administration agree on. matt, back

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