Unemployment benefits?

The other 95% of the people who are working pay the taxes.

The "government" that pays unemployment is the state government, which has its own dedicated tax for unemployment the employer pays. So another answer is that the employers pay for the unemployment. Depending how you look at it.

As several people have already answered, the states pay unemployment and they pay from a separate fund that employers pay into. But you are right to wonder, because I heard on one the the financial networks a couple of weeks ago, that by the end of this month 10 states will have no unemployment funds left and by the end of January, that is expected to be at least 30 states. When a state runs out of unemployment it has to decide to either 1) stop paying unemployment (which will get everybody un-elected next election), or 2) drain the general fund where individual and corporate income tax and sales tax and gasoline tax and all other taxes put in but where state services take out. So each state will either have to raise income tax or sales tax or else cut back other services or cut back unemployment. No good choices at that point.

Employers are required to pay unemployment taxes to state governments based on payroll. The taxes are not paid by employees or working people. Who knows how long they can continue to pay. There have already been extensions on the time limit to draw. I hope 2009 is better but it seems as though the unemployment rate will continue to rise. Good luck if you still have a job.

Employers pay into the unemployment insurance fund. That's where the money comes from. Not income taxes.