Congress should exempt the first $2,500 of unemployment insurance benefits from federal income tax.
Displaced workers often can find new work only in jobs that, at least at the outset, pay lower wages. The federal government can help displaced workers — and encourage them to find new jobs — by providing wage insurance. Yet cash-strapped states with budget neutrality rules in their constitutions may not be able to provide the level of assistance that many workers need. Within the American Recovery and Reinvestment Act the federal government allowed the first $2,400 of unemployment insurance to be exempt from federal income tax. Yet the exemption was only for 2009. Congress should make the exemption permanent.