I understand the nature of a changing economy enough to appreciate that some people are thrown out of work and have a difficult time getting back on their feet. The government doesn’t make it any easier no matter what they say because Washington only encourages continued unemployment by effectively paying people not to work. Therefore, I thought about an alternative system, one that would provide a cushion and yet not be a drag on the taxpayer. In fact, my idea provides greater flexibility and much greater potential for those who behave responsibly. No, it’s not perfect but it’s better than what we have.

Here goes. The framework is much like a health savings account. Each person has their own “account” for accumulating funds that can be withdrawn in the event the person becomes unemployed. Management of the account is the sole responsibility of the account holder, that is the individual.

The funds deposited into the account come from two sources: 1) employers, 2) the individual. The government does not contribute to the fund, nor may the individual seek funds from any government (local, state, federal) at any time to pay what is currently referred to as “unemployment benefits.” In other words, if you go with this system, you are on your own in terms of supporting yourself in times good and bad.

Funds deposited into the account are tax deductible for both the employer and the individual. The funds may also be withdrawn tax free.

Each pay period, the employer deposits a percentage of the individual’s gross pay into the account, an amount that currently is taken by federal and state governments in the form of the unemployment benefits tax. To clarify, this is a diversion of funds away from the government to an account in direct and sole control of the individual. The employee is then free to deposit additional monies if they desire.

Now, hard times come and an individual is no longer employed. The person is able to draw upon their own funds from the account at a rate at which they see fit. If the individual wants to take it all at one time, go for it, but then it will be gone. If you want to take a few bucks here and there as you need them to pay bills, that’s okay, too. And, if you just want to sit back and live off your savings and not go get another job, that’s your prerogative. Just remember, there’s no going to Uncle Sam for more when you blow the cash. The individual will have an incentive to be careful about taking/not taking employment opportunities as the money is depleted.

And here’s the kicker, when you retire, at whatever age, you take the money tax free. That’s right, it’s your money, earned by you in the first place. Why should you let it stay in a pool for some other fool who wasn’t as responsible as you? Furthermore, in the event of your untimely death, the money could be inherited tax free by anyone designated by the individual.

Think about what this plan does: 1) The individual is in control. 2) Government Bureaucracy is greatly reduced because the government is not “managing” the system. 3) The individual can build up a nice, tax-free nest egg. 4) There is a huge incentive to stay employed and save along the way, both for security and to reduce taxes. 5) This plan demands responsibility with serious consequences for people who try to live as a burden to others. 6) It rewards people who do the right thing and provides a benefit to their heirs should the individual pass away before reclaiming the money. 7) It creates pools of private capital in banks that can reenter the economy.

Finally, consider that a person who remains employed continues to see the account grow as the employer’s contribution builds the balance. It’s like having another retirement account, but unlike Social Security, it is not dependent on government funding. The cash is yours at the defined age and you know exactly how much it is. Social Security benefits may be increased or decreased at the whim of Congress.

As I stated in the beginning, it is not a perfect idea. However, I think Cass Sunstein would be proud of the choice architecture it creates, if he could get past the fact that individuals and not Big Brother are in control.

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