If you were making $1 million per year or more, but lost your job, would you file an unemployment claim? Nearly 3,000 American millionaires would have answered "yes" to this question in 2008, according to an article by Ryan J. Donmoyer at Bloomberg. IRS data shows that a whopping 2,840 households earning at least $1 million in 2008 also filed for government unemployment payments that year. There are two sort of immediate questions that arise from this fact: what were they thinking, and should this be allowed?
What They Were Thinking?
To non-millionaires it might seem absurd that people who had such a staggering income recently would turn to the government for help after losing their jobs. But it shouldn't. First, most wealthy people didn't become that way by accident. They tend to be pretty savvy about money. So if the law entitles them to collect unemployment when laid off, then they aren't the type to turn down free money. Only a fool would do that.
Moreover, for many millionaires, they might see their layoff as the one time they can finally get back some of the hundreds of thousands or millions of dollars they've paid in taxes over the years. Many tax credits don't apply to them, if they're phased out for people with income above a certain threshold. They may as well cash in this once, just for principle's sake. After all, once they get back to a high paying job, they will have to revert back to paying the government a lot and getting little in return.
Should This Be Allowed?
Unemployment benefits are actually a type of insurance. And just like other kinds of insurance, it is paid out regardless of how much money you make. In this case, however, it's important to remember that the insurance payments to households that had a high-income are not directly proportional to their previous compensation. Most states have a very low unemployment payment ceiling. In New York State, for example, anyone making more than around $42,000 is paid a maximum of $405 per week -- which would add up to an income rate of just $21,060 per year.
So those who enjoyed an ultra-high income can't benefit more from unemployment payments than middle- or lower-class Americans. As the Bloomberg article says, these millionaires only took in $5.2 million in unemployment payments in 2008, out of the $43.7 billion total. That's just 0.012%.
The government could certainly pass a law that disqualifies anyone who made more than a certain income during the year from collecting unemployment. And in this case it would have saved the government about $5 million. That's something, but this is a pretty tiny amount of money in the grand scheme of government budgets. A handful of millionaires who are enjoying what's likely a short stint of receiving government assistance hardly characterizes a serious problem so vital to the nation that it should be at the top of Congress' priorities.
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