NCPA - National Center for Policy Analysis


July 8, 2010

No one opposes unemployment benefits as a transition aid for people to get back on their feet and find a new job.  Unemployment benefits are a safeguard for individuals down on their luck.  But to argue that unemployment benefits actually reduce unemployment is disingenuous at best, and could induce our government to enact policies that have the effect of destroying our nation's production base from whence all benefits ultimately flow, says Arthur B. Laffer, chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen." 

According to Laffer: 

  • Any government program that would reduce unemployment has to make working more attractive for both employer and employee.
  • Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. 

He recommends: 

  • The government should have taken all $3.6 trillion and declared a federal tax holiday for 18 months.
  • With no income tax, corporate profits tax, capital gains tax, estate tax, payroll tax (FICA) either employee or employer, Medicare or Medicaid taxes, federal excise taxes, tariffs or federal taxes at all, federal revenues would have been reduced by $2.4 trillion annually.
  • This would have resulted in a 2.5 percent unemployment rate. 

Source: Arthur B. Laffer, "Unemployment Benefits Aren't Stimulus," Wall Street Journal, July 8, 2010.

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