1.2M Jobless Face Unemployment Extension Deadline—and Regressive Tax on Benefits

Roger Bybee

U.S. Rep. Elijah Cummings (D-MD) (R) speaks during a hearing on the latest unemployment figures before the Joint Economic Committee February 5 in Washington, DC. Despite the drop in unemployment, 20,000 jobs were still lost in January.

With polls about the election of GOP Sen. Scott Brown in Massachusetts showing that much of the public sees Obama as trying too hard to aid Wall Street rather than working families, it is absolutely imperative that Obama go on the offensive to establish that he is willing to fight for working people.

Otherwise, the Obama line about bailing out Wall Street in order to save Main Street” will become a set of concrete overshoes for many Democrats come November. The public wants the economic crises of their families — particularly unemployment — addressed immediately.

The latest economic headlines — about a drop in unemployment from 10% to 9.7%, and signs of increased economic activity — actually conceal the underlying reality. While the official unemployment rate dropped, 20,000 jobs were lost in January. The statistical drop in joblessness was produced by many hundreds of thousands ceasing their search for work, thus producing the misleading headlines. Fully one out of six manufacturing workers remain jobless.


AsThe New York Times explained:

The overall toll of the recession, meanwhile, grew larger: 8.4 million jobs have been lost since December 2007, the government said, nearly one million more than previously recorded. Those numbers jumped significantly from December because the Labor Department on Friday said it had completed a benchmark revision of job losses since April 2008.

Job losses in August, September and October of last year were 240,000 worse than original forecasts.

The current situation underscores the importance of shfiting more federal funds to the states to refill their unempoyment compensation coeers. With such massive unemployment persisting, unemployment funds at the state level are in very serious shape, as ProPublica reports.

The unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning.

A record 20 million Americans collected unemployment benefits last year, and twenty-six states have run out of funds and been forced to borrow from the federal government, raise taxes, or cut benefits.

Six states are considering reductions in benefits and rule changes adverse to workers,


The National Educational Law Project warns that the situation will get much worse unless Congress acts by Feb. 28, when some 1.2 million Americans are in danger of running out of benefits:

Unless the Congress extends provisions of the stimulus bill by the end of February, 1.2 illion laid off workers will become ineligible for extended benefits in March. Congress must swiftly act to maintain the lifeline for millions of jobless Americans caught in the undertow of record long-term unemployment in this ongoing downturn,” said NELP director Christine Owens in a statement.

The stimulus bill added up to 53 weeks of federally-funded unemployment benefits to the 26 weeks provided by states – and then up to an additional 20 weeks of extended benefits. Without another extension, a person receiving unemployment benefits will not be
able to advance to the next tier of federal benefits after February (nobody would lose benefits mid-tier).

The stimulus bill also provided a $25 weekly boost to benefit checks and a 65 percent subsidy of COBRA health insurance.

The human toll from inaction will be immense:

The cost of not reauthorizing these important unemployment provisions will be substantial — in the form of increased foreclosures, less money flowing through communities, and reliance on other public benefits — and will slow down the economic recovery that will bring us jobs.


While the most crucial immediate task to help the jobless is to force Congress to act before Feb. 28, the unemployment comp system needs another fix: repealing the federal income tax on UC (unemployment compensation) income.

Adding insult to injury for jobless workers is the persistence of an outrageous but barely-remembered change enacted in 1983 during the last recession. At the federal level, Reagan and the Republicans came up with an inventively regressive rob-Peter-to-pay-Paul scheme to deal with the shortfall in federal funds: taxing UC benefits to help provide support the UC system.


The taxation of UC benefits was particularly galling because of the massive tax cuts that Reagan had bestowed upon corporations like General Electric in the name of job creation, while such firms were busy moving jobs off-shore en masse.

The tax on UC was also enormously counter-productive, because the newly-applied tax reduced the spending power of laid-off workers and delayed the end of the recession.

Incredibly, the federal income tax on UC benefits remains in effect in 2010 under a Democratic administration, still acting as a brake on the end of the recession and the creation of more jobs. (Clarification: the Obama stimulus proposal has modified the tax on UC to exempt the first $2,400 in UC payments. See below for more on this.)

Along with adopting the big changes” that Richard Trumka has laid out to create jobs and extend unemployment benefits, one small change — finally dumping the tax on UC, a nasty legacy of Ronald Reagan’s reign — would also be very much welcomed by the unemployed.

CLARIFICATION: While the tax on the jobless was instituted in 1983 during the last very severe recession by Ronald Reagan’s regime, the Obama stimulus act, to its credit, created a partial exemption for a small share unemployment insurance, John Dipko of Wisconsin’s Dept. of Workforce Development tells me.

As part of the recovery act (ARRA), the first $2,400 of [unemployment] benefits during the 2009 tax year are exempt from federal taxation.,” Dipko says. The date extensions now under consideration in Congress [which need to be passed by Feb. 28] may or may not include the provision for tax year 2010.”

Hopefully, in the name of justice, the exemption can be expanded to exclude all unemployment compensation from taxation.

Roger Bybee is a Milwaukee-based freelance writer and University of Illinois visiting professor in Labor Education. Roger’s work has appeared in numerous national publications, including Z magazine, Dollars & Sense, The Progressive, Progressive Populist, Huffington Post, The American Prospect, Yes! and Foreign Policy in Focus. More of his work can be found at zcom​mu​ni​ca​tions​.org/​z​s​p​a​c​e​/​r​o​g​e​r​d​bybee.
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