What if we could change the income tax so that it taxes low incomes instead of high incomes? Suppose, for instance, that everyone had to pay 100% of their first $15,000 of income to the IRS, and only after this could they keep any money they earned. Of course, this would provide a terrible disincentive for people to work - it might even make it impossible to find people willing to take minimum wage jobs, which pay about $15,000 a year. No one would want to impose such a tax.
Oh, wait. Yes, actually, they might. This is how we've structured our unemployment compensation system - as one of the most regressive income taxes you can imagine. If you lose your job and are eligible for unemployment, you can collect a varying weekly amount in different states (with the maximum ranging from $405 a week in New York to just $205 a week in Arizona). But if you do find work and take a job, you have to give up 100% of that benefit first. So, if you are collecting $320 a week in unemployment and you take a 40-hour-a-week job from McDonalds or Wal-Mart, say, at $10 an hour, your actual "pay" will only be $2 per hour.
In the debate on whether to extend unemployment benefits, why doesn't anyone see this as a structural problem, rather than an ideological issue? We can't fix the problem of disincentive entirely, but we don't have to limit our options to simply shutting off benefits altogether at a certain point.
For instance, why not allow benefits to phase out gradually after you take a new job? Take a job and during the first four weeks of working you could still collect 50% of your unemployment benefits.
Or how about giving newly unemployed people the option of taking a one-time payment, with no penalty imposed for taking a new job? If you become unemployed, you can choose either to draw a weekly amount for up to 26 weeks (or whatever the eligibility period is), or you can take a one-time advance payment equal to 50% of that total, and no further benefits. (But you wouldn't have to give anything up to take a new job, either.)
The best structural change we could make would be one that allows an unemployed person to have at least some control over his or her own fate. Instead, right now we rob people of control, and subject them to a deadening, one-size-fits-all policy administered with bureaucratic inflexibility. Come on, Washington! It's time for our politicians to join us here in the 21st Century!
