Donald Hirasuna
Analyst in Labor Policy
The economic recession that began in December 2007 officially ended in June 2009 when the U.S. economy reached a trough, or low-point, in business activity. This recession lasted 18 months, making it the longest of any recession since World War II. To date, there is some growth in the nation’s Gross Domestic Product (GDP), and unemployment rates have fallen—but they remain persistently high in comparison to previous years. Peaking at 10.0% in October of 2010, the unemployment rate was 8.2% in May of 2012, up from 4.6% in May of 2006.
In response to the sustained period of high unemployment rates, Congress has extended Unemployment Insurance (UI) benefits several times. As a result of the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96, signed into law on February 22, 2012), UI benefits are potentially available for up to 99 weeks, which is longer than during any previous recession— although in practice, no state currently offers more than 79 weeks of benefits.
The temporary, long-term extension of UI benefits has occurred at a time when the federal government and the states face serious budget constraints. The recent debate in Congress over the latest extension took place in a climate of ongoing concern over the level of federal budget deficits. It was in this context that a proposal to restrict unemployment benefit receipt based on income emerged. Specifically, the House-passed version of H.R. 3630 (the Middle Class Tax Relief and Job Creation Act) included a provision that would impose an income tax on unemployment benefits for high-income individuals. Based on a scaled approach, the tax would increase to 100% for a single tax filer with Adjusted Gross Income (AGI) of $1 million (or AGI of $2 million for a married couple filing a joint return). The provision, however, was not included in the final version of the legislation that became P.L. 112-96.
Several other bills have been introduced in the 112th Congress that would restrict unemployment benefit receipt based on income (i.e., they would change the current requirement to provide unemployment benefits to all workers without income restrictions). S. 1944 would impose an income tax on unemployment benefit income for certain high-income tax filers, among other provisions. S. 1931 includes the same provisions for a tax on unemployment benefits received by high-income individuals as H.R. 3630. H.R. 235 and S. 310 would prohibit the use of federal funds to pay UI benefits to certain high-income individuals, among other provisions. While the recent debate in Congress commonly referred to restricting “millionaires” from receiving UI benefits, the various proposals specify different income thresholds at which the restrictions would apply (i.e., they vary in how they define high-income individuals).
To inform the policy debate, this report provides information relevant to proposals that would restrict the payment of unemployment benefits to individuals with high incomes. Three primary areas that may be of interest to lawmakers are addressed: (1) the current U.S. Department of Labor (DOL) opinion on means-testing UI benefits; (2) the potential number of people who would be affected by such proposals; and (3) policy considerations such as the potential savings associated with such proposals, particularly in terms of federal expenditures. The latter two issues are discussed because a small percentage (approximately 0.02%) of tax filers receiving unemployment benefit income had AGI of $1 million or more in tax year 2009 based on Internal Revenue Service (IRS) data.
Date of Report: August 2, 2012
Number of Pages: 13
Order Number: R42643
Price: $29.95
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