States can no longer pay out unemployment insurance and may soon hit businesses with tax hikes to cover related budget shortfalls, according to a study conducted by the Tax Foundation, a Washington think tank.
Thirty-four states have borrowed over $37 billion to pay benefits, and many of those states are likely to default on interest owed to the federal government.
That could result hefty tax increases for businesses, the Tax Foundation finds.
"Unemployment insurance was meant to be a program that built up surpluses in prosperous times, with the expectation that they would be spent down during economic downturns," says Tax Foundation Vice President of Legal and State Projects Joseph Henchman in a statement.
"The problem with most state funds is that they stopped building up reserves during the good times. Before the beginning of the recession in 2008, less than half the states were in a position to disburse more than a year’s worth of the kind of high benefit pay-outs that would be expected in a major economic downturn."
Higher taxes slapped on employers would come at an already hard time marked by weak hiring.
The Senate, meanwhile, recently rejected President Barack Obama's $447 billion jobs bill, which puts unemployment benefits for many at risk.
Some 6 million are set to lose federal unemployment benefits in 2012, with 1.8 million running out in January, CNNMoney reports, citing National Employment Law Project data.
Obama's bill would have extended unemployment insurance for many, although some say the country cannot afford to pay such benefits forever.
"Unemployment benefits should not turn into a permanent solution," House Majority Leader Eric Cantor has said, CNNMoney adds.
"We should somehow connect the unemployed and unemployment benefits with work and job opportunity."