There is a tax on unemployed citizen in this country that can reach up to 50% and no one is talking about it. It is costly and affects only the people that have exhausted all other sources of income. Unemployment runs out, savings accounts are completely depleted, credit card debt is increased significantly trying to pay bills and then you go to your last resort—your retirement account.
This has happened to me. Unfortunately, my husband who once had a very prosperous business as an architect lost his business due to the recession. He was lucky enough to find a job at a company—but that lasted less than a year when that company downsized. He has not been able to find steady work since then. I worked as a teacher but recently switched jobs to make more money (that is another story I can tell another day). Although the pay increase was nice, it still was not quite enough to pay the bills. After 5 years of unemployment and underemployment, we used every resource we had. When the mortgage was due and we did not have the money to pay it, we began using our retirement funds. This is something that no one ever wants to do. The fact is we had no other choice.
The sad reality is, using your retirement account to live now is very costly—more costly than living off credit cards. The tax bill for withdrawing $3500 ended up being $1700!! This is because you are penalized for taking the money out before retirement age and then taxed on it as income.
No one is talking about this tax but it is a real problem. I have another friend that owes $5000 for withdrawal penalties from his retirement account—again he was long term unemployed. It is so unfair for wealthy people like Mitt Romney to pay (maybe) nothing, yet someone desperately trying to survive is taxed at 50%.
Someone from Congress needs to introduce a bill that would eliminate withdrawal penalties for the long term unemployed. To have to empty your retirement account while in your forties is tragic—we should not be further penalized by being taxed on it. If they must tax the money as income, I can understand it (but don’t like it). However, the penalties should be removed for anyone that has been unemployed or underemployed and has exhausted their unemployment benefits. Why is it that this society has no problem taxing less fortunate people but will never vote to raise taxes on the most fortunate? It does not make sense. If the wealthiest people cannot have an increase in taxes because they are the job creators, would you please tell me where those jobs are?
I would like to know if Mitt Romney would like to pay the $1700 in back taxes that I owe as I have no idea how I am going to do it. Since he did not pay taxes or paid significantly less percentage than I did, maybe he would be willing to do that out of the kindness of his heart. Or maybe he has more important things to be concerned about—like dressage.