Tax Policy

Get Government Out Of Unemployment Insurance

Reformers question the federal government's role in the unemployment insurance system. They contend that it -- like Social Security -- has resulted in many unforeseen and undesirable economic consequences.

  • While the payroll taxes that support unemployment insurance are levied on employers, the cost is ultimately passed on to employees -- and since many of them never collect anything from it, it is a wealth redistribution system mainly benefiting workers in cyclical and seasonal industries.

  • The prospect of being cared for by the government in the event of job loss does nothing to encourage workers to save as a precautionary measure -- indeed, prompts them to spend instead.

  • The subsidy to unemployed workers reduces their incentive to search diligently for a job -- while also subsidizing high-turnover employers.

  • When unemployment is low, as it has been in recent years, large unemployment insurance surpluses accumulate in federal coffers and are then "invested" in federal debt securities -- which allows officials to promote the fiction that the budget is just about in balance, then embark on a new round of spending.

It's been suggested that rather than forcing some workers to subsidize others, all workers should be allowed to establish their own Individual Unemployment Accounts.

Source: George C. Leef (Michigan consulting firm Patrick Henry Associates), "A Job the Government Should Quit," Wall Street Journal, April 29, 1998.

Home | Support Us | All Issues | Social Security | Debate Central | Contact Us

Dallas Headquarters: 12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
Washington Office: 601 Pennsylvania Avenue NW, Suite 900 South Building, Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
© 2001 NCPA