Monday, October 11, 2010



Someone sent me a link to an article on noting that in 2008 (the latest year for which figures are available), 2,840 US individuals from households reporting income of at least $1million on their tax returns claimed a total of $18.6million in jobless aid (aka unemployment benefit). 806 of these had income of over $2million and 17 had income of over $10m. Another $52.8m was paid to 8,011 households earning between $500,000 and $1m.

In 2009 Congress voted to exempt from federal income tax the first $2,400 of jobless benefits. The top rate of personal income tax in the US is 35%, so to a millionaire that $2,400 was worth $6,857 net. Unemployment benefit in the US averages $300 per week but lasts for only 26 weeks. So on the full $7,800 dollars a millionaire would be left with $5,910. Not bad for doing nothing other than put in a claim.

This story raises some interesting questions. The first thought in my mind in reading the headline was, “How greedy can some people be?” My second was that surely unemployment pay is not aimed at millionaires and it is unreasonable for such people to claim it even if technically they may fall within the rules.

But I then read the justification from a couple of Washington Think Tanks. One pointed out that, “Unemployment benefits are insurance, funded with taxes paid by employers, and the program isn’t need-based like welfare. A millionaire who loses his or her job is entitled to benefits the same as a laid-off factory or restaurant worker”.

Another said, “Getting an insurance payment doesn’t depend on need but only on suffering an insured loss. We don’t say that your homeowners’ policy shouldn’t pay off if you’re a millionaire”.

Of course we’re in the same position in the UK. Jobseekers Allowance is an entitlement “bought” by payment of employee’s National Insurance, in the same way as in the US Unemployment Insurance is “bought” by payment of FUTA (Federal Unemployment Tax Act) contributions by employers of 6.2% on the first $7,000 a year paid to a worker. The employee gets a credit against his Federal Tax of up to 5.4%, so effectively much of the cost of the “insurance” is met by the State.

I am not personally convinced either by the, “It’s the same as an insurance claim” argument or the “You’re entitled to it” one. It seems to me that both National Insurance and Unemployment Insurance are far more akin to taxation than to genuine insurance.

But the fact that these arguments can be put forward by respected Think Tanks does raise an important issue, namely if the State opts to “sell” to the public a tax, such as National Insurance, by labelling the compulsory contributions (that are not related to the benefit being “bought” by the employee’s earnings) as an insurance premium, is it right to look aghast when the rich take that presentation at face value and claim benefits that they do not need? Indeed if universal Social Security benefits are advertised by the State as an “entitlement”, as frequently happens here, is it reasonable to complain if even the ultra rich claim the entitlement, albeit that most of us would probably think that in making the benefit universal Parliament assumed that the very rich would not expect the State to contribute to their support?



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