On August 5, 2011, Congressman Mike Michaud introduced the "Workforce Fairness and Tax Relief Act" to provide much-needed tax relief to America's dislocated workers. The bill would ensure that dislocated workers are not taxed on their unemployment benefits and Trade Adjustment Assistance (TAA) benefits. It would also provide penalty-free withdrawals on 401k retirement plans for workers that have been unemployed for more than 6 months.
"I introduced this bill after hearing from many impacted workers in Maine," said Michaud. "As our economy continues to struggle to recover, we can't forget about the very real and significant impact it has on so many Americans. I believe this bill represents a commonsense way to provide additional relief to unemployed workers that are facing incredibly difficult financial situations. Unemployment insurance and TAA are critical lifelines for many, and they are a good investment for the American taxpayer. But the fact that the benefits are taxed reduces their positive impact on dislocated workers and the economy as a whole."
For every $1 spent on unemployment insurance, $1.63 is generated in economic demand. The Congressional Budget Office has reported that aid to the unemployed is the most cost effective way to get our economy going again. Currently, an individual collecting the standard $295/week in unemployment benefits pays $118 per month in federal taxes. Additionally, many states often levy their own additional taxes on unemployment assistance, making it even more difficult for working families to get ahead. Under the Workforce Fairness and Tax Relief Act, the federal tax would be eliminated.
Some dislocated workers eventually have to withdraw from their retirement accounts to make ends meet. However, withdrawals from retirement accounts face stiff penalties. While these penalties are well-intentioned and help encourage long-term retirement planning, they add insult to injury when unemployed individuals have no other choice. The Workforce Fairness and Tax Relief Act would eliminate the penalty on early withdrawals for the unemployed.
