We examine the distributional consequences of the
UI payroll tax using representative individual microdata. We calculate
taxes paid by individual wage and individual and household income
deciles, incorporating the effects of multiple job holding and
turnover. This tax distribution is compared with the distribution
of UI benefits and benefits net of taxes, as well as to the burdens
imposed by the federal income tax. We conclude that the UI payroll
tax is indeed quite regressive. Within the context of the regular
UI program, this regressivity is offset by the progressive nature
of benefits, leaving the net benefit distribution progressive.
We simulate a revenue-neutral increase to the OASDI level of the
taxable wage base. The share of total UI taxes paid becomes fairly
equal, and net benefits become positive across more deciles. Finally,
we examine the effect of providing family leave within the UI
system as recently proposed. We find that the share of such benefits
going to relatively high-income groups is likely to be much larger
than is the case for regular UI benefits.
Work on this project was partially funded by a grant
from the Employment Policies Institute.
We thank Dick Toikka and participants at the June 2001 “America’s
Workforce Network
Research Conference” in Washington, DC for useful comments.
Patricia M. Anderson, Economics,
Dartmouth College; and NBER Bruce D. Meyer, Economics and Institute for Policy
Research, Northwestern University; and NBER
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