Millionaires on the Dole

On Friday WalletPop broke the news that IRS data shows that some millionaires claimed unemployment benefits in 2008. Using the increasingly rare definition of millionaire as a person or household with more than a million dollars in income, rather than net worth, it disclosed that according to IRS data (found here on table 1.4) 2,840 returns showing more than a million in adjusted gross income reported some unemployment compensation.

So the secret is out. I certainly did not qualify as a millionaire under the income test in 2008, but, as I have previously confessed, using the commonplace net worth criteria I do clear the (lower) bar. And, if you must know, I drew unemployment benefits for pretty much the whole of 2008. Oh, the shame!

I realize that few of you readers are part of my elite economic strata. So let me share some of my world with you. Not only do we fat cats draw unemployment when unemployed, when old we get Social Security and Medicare. Some of us even send our kids to public school. We drive our luxury automobiles on public roads and when our mansions catch on fire we call the municipal fire department to put it out.

Shocking, I know.

But seriously, if anything the count of 2,840 returns with both incomes over a million and some unemployment compensation is surprisingly low. A total of 321,294 returns reported more than a million in income in 2008. Of those, only 264,186 showed any income at all from salaries and wages, meaning that 57,108 were not employed for the entire year. Numerous others, we presume, were employed for some of the year but not all of it.

It is pretty clear to me that more than 2,840 were eligible for unemployment compensation but did not choose to take it. Perhaps they have a lower tolerance for dealing with bureaucracy than I do. Or a stronger sense of dignity.

It is also possible that on an after-tax basis they decided the unemployment checks were just not worth the considerable hassle. Unemployment compensation, you see, is taxed as income at both the state and federal level. People who have never drawn it tend to be surprised by this. Welcome to my world.

Actually, it is not quite that simple. In 2008, and in years before that, unemployment benefits were fully taxable. But the stimulus package passed in early 2009 included amongst its many delicious pieces of pork an exemption from federal tax on the first $2400 in unemployment compensation for 2009. Last I heard, this was not renewed for 2010, so it was a one-shot deal.

If you think about it, and I am betting that very few in Washington did, exempting the first $2400 was a spectacularly regressive policy. It did nothing to help the person who’s only source of income was unemployment compensation. For the long-term unemployed just getting by on the weekly checks, the first $2400 was not going to be taxed anyway.

On the other hand, for the kind of people for whom getting unemployment compensation might not be worth the hassle and shame, exempting $2400 from tax was a nice little sweetener. If, for example, you had investment income and a wife with a good job such that your marginal federal income tax rate was 35%, then the exemption was worth $840. Thank you, Mr. President!

The WalletPop post treats the fact that the very rich sometimes draw unemployment compensation as a great revelation. Further, the unmistakable subtext is that it ought to be a scandal.

I have little sympathy with those who are surprised about the rich getting unemployment. Anybody with a simple understanding of how that system works, and I consider that sort of understanding to be basic personal finance literacy, should be able to work out on their own that yes, of course, even rich folks sometimes get benefits.

For similar reasons, I have trouble considering it a scandal. But there is a legitimate question as to whether or not this is the way the system ought to work.

I liked getting those checks. Who wouldn’t? But I am not going to claim to be much of a charity case. Without them our lifestyle would have been exactly the same. We would have eaten the same food, lived in the same place, and shopped in the same stores. The only difference would have been that we would now have a very slightly lower net worth.

To be clear, I was legitimately entitled to the checks. I paid, or had paid on my behalf, unemployment insurance premiums for many years. And my being eligible for benefits was no fluke or loophole. The system worked exactly as designed and intended.

And yet I imagine lots of people are not particularly happy to hear that I got a weekly $575 check from the government. It is similar to the minor hullabaloo a few months back about food stamps being used at Whole Foods.

Congress recently extended unemployment benefits again, which occasioned a brief bit of sniping on the subject. Much of the bickering focused on the fairly silly question of whether or not unemployment compensation is an incentive to stay unemployed. Lost was the larger question of fairness.

What often gets overlooked is that when the government gives a dollar to one person it must take it from another. You cannot really evaluate the fairness of that wealth transfer unless you compare the recipient with the payer, the so-called Forgotten Man.

And it is here that millionaires getting unemployment compensation they do not really need and hipsters using food stamps at Whole Foods strikes a nerve. It is not that the recipients do not deserve the money, per se, it is that they do not obviously need it any more than those from whom the government took it.

Government, PF Blogs | Frank Curmudgeon | August 2, 2010 12:29 pm

13 Comments

By The Head Hunter, August 2, 2010 @ 3:33 pm

Not to get political but Obama and the Demoncrats are doing a great job of creating class warfare. Several years ago, no one would’ve cared if millionaires received benefits they were rightly entitled to. They paid into the system just like everyone else! Now, the assumption is that rich people aren’t paying their fair share, even though they’re paying for 90% of EVERYTHING. Half of all people aren’t paying THEIR SHARE AT ALL.

What happened to the America where you celebrated your neighbors success while working towards your own? All this jealousy stems from a sense of entitlement. People actually believe they are owed something just because they suck air. Someone owes them food, housing, health care, electricity, etc… I don’t know this new country, I don’t understand it and I don’t like it.

And while we’re marching towards communism, the communistic countries are running away from it. Research what’s going on in Cuba and Red China these days.
By Frank, August 2, 2010 @ 4:52 pm

not worth the considerable hassle

In Mass you go online once a week and click that you are looking for work and the checks are direct deposited – to what hassle are you referring?
By Jules, August 2, 2010 @ 6:11 pm

Several years ago, no one would’ve cared if millionaires received benefits they were rightly entitled to??? Really? So you’re saying that we had a Republican president,then no one would care if rich people collected unemployment that they didn’t really need?
Unemployment rolls increase in a shrinking economy as jobs diminish. I think you are associating the current economic situation with the current president, when in reality the economy’s course was charted well before this president took office.
By Investor Junkie, August 3, 2010 @ 8:12 am

The class warfare played out by the administration and news is getting old… real old. Who are they going to blame if there are none left?
By Frank Curmudgeon, August 3, 2010 @ 8:48 am

Other Frank in Mass: It was totally worth it for me, but signing up in the first place and then re-upping every so often took a lot of time on the phone, most of it on hold. At least twice I was told to call back the next day because they were too busy. I think that a person who only expected to draw it for a few weeks might think of the hassle differently.
By jim, August 3, 2010 @ 2:25 pm

The processes and ease of getting unemployment checks varies in every state. My state seems pretty easy, but my sisters state required her to do a lot more including a mandatory full day class on resume writing. I bet that mandatory day long class saves their state millions by putting up a minor hurdle that deflects lazy people.
By The Head Hunter, August 3, 2010 @ 4:36 pm

@Jules Did I SAY REPUBLICAN? We just need someone in office that is PRO-CAPITALISM and doesn’t do everything they can in the middle of a recession to pass idealogical agendas at the DETRIMENT of the economy.

EVERYONE seems to forget about the recession of 2000, remember Y2K & the Tech Bubble? Bush inherited a slow economoy and then 9/11 occured which caused it to downturn even further, IN HIS FIRST YEAR!

But he NEVER blamed his predecessor (UNLIKE the CURRENT PRESIDENT), he cut taxes and increased incentives to investors and business. Then LO AND BEHOLD, guess what? Surprise surprise, we had economic prosperity! Wow, what a shocker. Keep your head in the sand.
By maximizer, August 3, 2010 @ 7:03 pm

What often gets overlooked is that when the government gives a dollar to one person it must take it from another.

That’s the root cause of a lot problems in the world.
By Nick, August 4, 2010 @ 12:08 am

Maximizer is exactly right. I believe this is root of all mainstream problems we are currently facing. Whether it is a bad economy, or illegal immigration, we pay way too many people to do nothing. Those jobs that ‘no one’ will do so we have to have illegals do them are jobs that Americans don’t have to do because they can sit at home and collect benefits. Our growing entitlement culture will ruin us.
By Frank Curmudgeon, August 4, 2010 @ 1:09 pm

For those interested, the fairly reactionary essay from which the “Forgotten Man” term originated is here:

http://www.blupete.com/Literature/Essays/Best/SumnerForgotten.htm

It includes the charming argument against prohibition (it’s from 1883) that keeping drunks from dying in the streets is interfering with the natural order of things.
By Mary, August 5, 2010 @ 5:39 am

Unemployment insurance is paid by all and is meant for unemployed people. So you want to means test it. What else do you want to means test? Let’s look at this theory

1) Driving on roads, if you have more money you pay tolls for city streets, your neighbors do not.
2) Social Security, (really already means tested by taxation). If you have money you don’t get retirement benefits.
3) Schools, if you have money you need to pay full tuition for your children in addition to the taxes you already pay.

Look, how long do you think the populace would continue to pay taxes if they derive no benefit from it?

You are promoting envy. And remember many people who are millionaires just saved like crazy for a long period of time. They did not buy into the dream (nightmare) of hocking their future for some Hollywood inspired lifestyle.
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