There’s a good reason that I have a new job: I lost my old one as the editor of National Journal’s Technology Daily in a layoff. My last day was Jan. 31.
I was blessed enough to find gainful employment quickly, but not everyone is so fortunate. Sadly, our tax system can make life much harder for people who lose jobs.
The severance check I received to day drove that point home for me. The deductions from it for federal income taxes, state income taxes, and Social Security and Medicare would have been enough to pay the mortgage for two extra months had our family been forced to live on the generous severance.
I’m not exaggerating — and the tax bite on us was much smaller than it could have been. The federal government forces companies to treat such lump-sum severance payments like bonuses, which means the tax rate is 25 percent. The rate was significantly less for me because we have so many itemized deductions.
Governments should not be allowed to tax severance. It makes absolutely no sense to rob families of money that would help them buy food, pay the rent and live day to day while seeking new employment, and then turn around and give them food stamps and unemployment benefits that aren’t enough to pay the bills.
That’s bureaucratic logic for you. Lay off the layoff taxes, Uncle Sam and Aunt Virginia.