Until the 1980s, unemployment compensation payments were nontaxable. The rationale was that people who were collecting unemployment did not have the ability to pay taxes, just like people collecting welfare payments. In the 1980s, there was a change in the tax law which made unemployment compensation payments taxable. What rationale was used to justify this change?
Unemployment compensation varies across states but it tends to be a subsistence amount, so does this change make a difference? After all, low income levels are not taxed, given the standard deduction and exemption. So why make this change?