Opinion » Ted Rall

The Craziest Tax

Lost your job? The IRS thinks you're loaded.

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NEW YORK--My friend was a survivor. She'd made it through 14 rounds of layoffs at her accounting firm. Then came No. 15: "I was a telecommuter. When my boss told me to come into the office for a meeting, I knew I was done for. I told her to cut the crap, save me the trip, and fire me over the phone."

I told her how to file for unemployment benefits. In New York, you can get up to $405 a week plus $25 in extra "Obama bucks" approved by the feds back during the hope and change days. (Most states pay less.) Then I warned her: "Remember, set some of that aside. Unemployment benefits are taxable." In New York, that means roughly 40 percent.

She was shocked. You probably are, too.

When people lose their jobs, they spend their savings. They take out loans against their house. They're poor--but that's not how the federal government sees them. The IRS sees them as big, fat cash cows. Hey, someone has to pay for those missiles we shoot at Afghan wedding parties--not to mention those bonuses for executives at AIG and Goldman Sachs. Why not people a couple of months away from foreclosure? The unemployed are living phat!

The bizarre unemployment tax goes back to 1985, while the Reagan administration was busily waging class war against the poor and middle class. It was Reagan's idea, marketed as an easy way to raise $2.3 billion over five years. But it was Congressional Democrats, exhibiting their characteristic cowardice, who pushed through the measure. "This is a real step back from a traditional Democratic position," said Massachusetts Rep. Brian Donnelly at the time. "Under the guise of tax reform, we agreed to raise $2.3 billion from people who don't have jobs."

It was also hypocritical for Republicans, who rail against "double taxation" when they argue for the repeal of taxes on the estates of the wealthy. Unemployment benefits, after all, were already taxed once; while employed, workers pay into the federal and state unemployment compensation systems. When they get downsized, they're merely getting back what they put in.

The official unemployment rate is more than 10 percent and rising. With lots of folks out of work for at least a year, savings are running out. Tight credit and the housing bust means they can't subsist on home equity loans. And there's no recovery in sight. In other words, if you're not out of work yet, you could be soon.

As banks and insurance firms wallow in hundreds of billions of federal bailout dollars, it seems unbelievably churlish to tax unemployment checks, which are the only "income" received by millions of people--and are keeping many of them just barely afloat. It's also utterly absurd.

The Obama administration should repeal the Reagan Tax on the unemployed, and it should do so this instant. Call your Congressman (it's more effective than e-mail) and demand that he or she take action on the Unemployment Benefit Tax Suspension Act of 2009 (S. 155), currently stuck in committee because Congress cares more about bankers than struggling unemployed Americans. You can find contact information for your representative and senators at congress.org/congressorg/directory/congdir.tt.