New Issue Brief: Targeted Unemployment Insurance

Tax rebate loans can better protect the unemployed

New York, NY – The COVID pandemic put the problems with America’s unemployment insurance system on full display, with over a third of beneficiaries failing to receive payments in time, and tens of billions of dollars eaten up by fraudulent claims. The antiquated model—which has changed little since the 1930s—floundered in a time of crisis, but it also comes well short of meeting its intended purpose in less exceptional times.

In a new Manhattan Institute issue brief, senior fellow Chris Pope dissects the current structure of unemployment insurance, details why it fails those who need it most, and offers an innovative way to expand access to assistance, while cutting the overall burden of taxation. 

Pope argues that the current unemployment insurance (UI) program poorly protects Americans from temporary income shocks resulting from job loss. UI taxes currently weigh heaviest on low-income workers, but those in insecure employment circumstances are often entirely ineligible for benefits, and almost two thirds of UI spending goes to families with incomes above the median. To ensure that help goes to those who most need it, Pope argues for repealing the program and instead allowing unemployed workers to reclaim up to $500 per week of taxes from the two previous years as an income-contingent loan, which workers would repay with an additional 2% income tax after they return to work.

This would replace the outdated, state-based model with a national one, and eliminate the current 6% federal unemployment tax on the first $7,000 of income.

Read the full issue brief here.