Help may soon be on the way for states burdened with high unemployment insurance debt. The Obama Administration on Tuesday proposed a plan that would temporarily suspend interest payments that states owe the federal government which were incurred from borrowing money to cover unemployment benefit costs.

"The president's proposal ... prevents increases in the federal tax that goes to the unemployment insurance fund," White House Press Secretary Robert Gibbs said.

Many states were forced to borrow funds from the federal government to meet steadily increasing demand for jobless benefits. Congress temporarily suspended interest charges when it passed the stimulus plan in 2009, but the waivers expired at the end of last year.

  The Washington Post reports:

The proposal, to be included in the budget request President Obama will send to Congress next week, would also temporarily relieve states with elevated debt from having to automatically raise taxes on employers so the loans can be repaid.

But starting in 2014, the proposal would more than double the portion of workers' wages subject to the unemployment insurance tax that employers pay. This increase, from $7,000 to $15,000, would be aimed at raising revenue to repay the federal government.

"Ultimately, the states are going to need to repay their debts, and we're not going to want to bail them out," said an administration source familiar with the discussions. The source described the plan on condition of anonymity because the budget has not been released.

The Associated Press reports:

The administration's proposal could result in higher employer taxes, but Obama's plan could also force states to rethink who gets benefits and what benefit amounts are paid.

In the short term, the proposal would impose a moratorium in 2011 and 2012 on state tax increases and on state interest payments on the money borrowed from the federal government.

Still, the proposed increase in income levels subject to the tax raises the prospect of business tax increases in 2014, just as President Barack Obama is trying to court business leaders with pledges of removing uncertainty from the private sector. The federal portion of the unemployment insurance tax rate would be reduced so that it wouldn't result in a federal tax increase.

Said Gibbs: "This policy, if enacted, would prevent ... further federal tax increases, would help states make up for the shortfalls they have and give them time ... to rationalize what they offer and how they pay for it," Gibbs said.

The plan would provide some much needed help for many states mired in a mountain of debt. The collective budget deficit for states is currently at $175 billion through 2013, with revenues projected to remain depressed for at least several more years while the economy slowly recovery.

Republicans are critical of the proposal.

Sen. Orrin Hatch (R-Utah) said the White House's proposal was "job-destroying." In a statement, Hatch said: "the Administration dramatically expanded federal benefits to the point that neither states nor the federal government can afford them. Either employers will have less money to hire or workers will face reduced wages."

A spokesman for House Speaker John Boehner said, "Rather than doubling down on his job-crushing agenda, the President should work with Republicans to reduce economic uncertainty and create jobs by cutting spending and preventing any new tax hikes." 

The plan would first have to be approved by Congress in order to go into effect.