The U.S. government paid almost $80 million in unemployment benefits during the worst of the economic downturn to households that made more than $1 million, including a record $29.9 million in 2010, tax records show.
Almost 3,200 households — about 20 percent of them from New York — that reported adjusted gross income of more than $1 million received jobless-insurance payments averaging $12,600 in 2010, the latest year for which figures are available, according to IRS data compiled by Bloomberg. Those payments outpaced the total incomes for about 25 million U.S. households.
The $80 million represents less than 0.01 percent of this year’s $845 billion projected deficit. Yet the unemployment aid to millionaire households underscores the lack of means-testing in some federal aid programs as the Labor Department reports new jobless figures today. The aid also is a reminder of the difficulty of reining in spending.
“So many people are taking advantage of government support that they probably feel like, why shouldn’t they take advantage of it, too?” said George Walper Jr., president of the Spectrem Group, a Chicago-based market-research and consulting firm that tracks the number of households worth more than $1 million.
The House of Representatives passed legislation in December 2011 as part of a jobs bill that would have taxed unemployment benefits at 100 percent for single filers with adjusted gross incomes exceeding $1 million or married filers reporting $2 million in income. The provision wasn’t included in the bill signed by President Barack Obama.
The Internal Revenue Service doesn’t release information about individual income tax filers, so it’s impossible to identify specific millionaires who received unemployment benefits. It’s also unknown whether the benefits were paid to a person who earned $1 million during a year in which they were unemployed for part of the time, or to a spouse.
The benefits are unlikely to have gone to a dependent, such as a college-aged child living in a millionaire household, because they would file a separate tax return to account for their own income.
The federal data shows 610 millionaire households receiving jobless benefits in 2010 filed their returns from New York, second to more-populous California, with 810. New York City’s securities industry, which paid an estimated $19.7 billion in bonuses to employees last year, shed about 32,000 jobs from January 2008 through 2012, according to the New York State Comptroller’s Office.
Unemployment insurance was created in 1935 as part of the Social Security Act, and an extended benefits program for long- term unemployed workers was put in place in 1970. The law allowed state governments to levy payroll taxes on employers to fund the program. Weekly payments vary by state. Out-of-work Americans can collect $405 in New York, $235 in Mississippi.
An emergency unemployment program was started in July 2008 for Americans who exhausted their benefits by being unemployed for 26 weeks or more. The program has been amended 11 times, allowing some recipients to collect payments for as long as 99 weeks, according to the U.S. Labor Department. The most recent amendment was signed last year, extending federal help through the end of 2013.
The average millionaire New York household collected an average of $13,590 in unemployment benefits during 2010, or a maximum of 33 weeks of benefits.
Nationwide, unemployment benefit payments rose to $94 billion during the 2012 budget year, almost triple the $33 billion paid in 2007, the Congressional Budget Office said. Payments peaked at $150 billion in 2010.
Real unemployment, which includes discouraged workers and people working part-time for economic reasons, peaked at a seasonally adjusted rate of 17.1 percent in April 2010. The figure stood at 14.3 percent in February, according to the Bureau of Labor Statistics.
In central Harlem, where almost 1 in 3 people are poor and more than half the neighborhood isn’t part of the labor force, a line that frequently extends almost down the block to the Apollo Theater on 125th Street continues to form outside the state unemployment office early in the morning.
Clark James, 42, waiting outside the office, said he was laid off from his job as an assistant manager at a nonprofit organization last month. His eyes widened at the thought of millionaires receiving jobless benefits.
“I’m not a millionaire!” he said. “But if you’ve paid taxes for it, why shouldn’t you collect the money? And going from $1 million a year to $405 a week — that’s a big drop.”
Gary Burtless, a senior fellow at the Brookings Institution in Washington, said the millionaires collecting unemployment insurance made up just 0.035 percent of the 9.2 million Americans who received jobless benefits in September 2010. They also accounted for a little more than 1 percent of the nation’s 280,360 millionaires that year.
The distribution of unemployment insurance, with 68 percent of payments going to households earning less than $50,000, indicates the program is “effectively designed,” said Heidi Shierholz, an economist with the Washington-based Economic Policy Institute.
The 18-month recession “was the worst thing this country’s seen in seven decades,” she said. “The state funds were never meant to deal with a downturn of this size and duration.”
The typical U.S. household filing for unemployment received $8,050 in payments during 2010, IRS figures show. The smallest average, $3,034, was reported by 283,667 income tax filers that reported less than $5,000 in adjusted gross income. Thirty-three households earning more than $10 million collected average unemployment checks of $11,455.
Payments continued to rise in the aftermath of the recession, which ended in June 2009. The typical $12,600 unemployment insurance payments in 2010 to households with earnings topping $1 million represented a 46.4 percent increase from the average $8,606 in benefits paid to 2,362 millionaires in 2009.
With memories of the recession still vivid, many of those households remain conservative in their spending habits, according to Walper.
By Frank Bass
Courtesy of Bloomberg News