While federal guidelines recommend that states keep one year's worth of unemployment reserves, many states entered the recession already insolvent. When federal loans are exhausted, the only option left is higher payroll taxes – a move sure to discourage hiring and depress salaries.

The increasingly small and uncertain payouts of UI are the opposite of income security. The effect of UI's eight-decade experiment has been to condition workers to save less for a "rainy day" and instead rely on a system that provides no guarantee. UI limits personal responsibility to save; gradually, individuals find themselves in financial peril.

Unfortunately, subsidizing the status quo is the prescription of the moment, making the best solution the least likely to happen. Real reform. requires putting employees in charge with individual private accounts and getting the government out of the business of creating illusionary safety nets.

Unemployment Insurance Savings Accounts (UISA), by contrast, give workers control of their own income, eliminating the negative effects of the UI program on businesses and budgets.

Adopted by Chile in 2003, UISAs are also financed via a payroll tax on individual workers and employers. The difference is the money is directly deposited into the individual worker's account.

Basically a form. of forced savings, UISAs allow individuals to draw on their own accounts during periods of unemployment and roll unused funds into their savings upon retirement. With the burden reduced on employers, wages rise, leading to greater contributions to the individual's fund. The federal government is removed from the picture, and all workers are guaranteed a savings account upon retirement.

UISAs liberate workers from uncertainty and improve incentives. When unemployed workers must rely on their own funds rather than the common fiscal pool, they find jobs faster. Congress's repeated extensions of the current UI program may be well intended, but they may also be counterproductive. Like any deadline extension, additional jobless benefits diminish the job seeker's urgency, all at taxpayers' expense.
Today, expanded UI benefits mean higher state payroll taxes, which make it harder for employers to expand hiring or raise wages. UISAs, on the other hand, make the payroll tax on business part of the employer's investment in an individual worker, rather than a penalty for doing business.

In 2010, it's time to say goodbye to the problems created by broken policies. Congress should start this decade with a promise for true economic freedom: Let businesses create jobs and let workers keep what they've earned.

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