Ed was fired after admitting he stole merchandise from the downtown Washington sporting goods store that employed him as a sales clerk. A week later, he filed for unemployment compensation, and eventually collected $1,396.

Sam got drunk while tending bar at a hotel -- it was not the first time -- and he walked off the job, leaving the place untended. He, too, later filed for unemployment pay, and collected $938.

Incidents like those of Ed and Sam --the center of a controversy that is coming to a head as officials try to repair the District of Columbia's troubled unemployment compensation system.

Since 1972, when the fund contained $73 million, it has been drained by a rising number of higher benefit payments to the point where it is $64.4 million in debt to the U.S. Treasury. If it were a private business, it would be bankrupt.

To repay the $64.4 million, and to put the fund back on a sound footing, Mayor Walter E. Washington has asked the City Council to approve a 1 per cent surtax on local payrolls, to be paid entirely by the city's employers. It would raise an estimated $16 million a year.

The surtax is part of a measure that also would overhaul other parts of the compensation program.

The surtax proposal has drawn fire from the Metropolitan Washington Board of Trade, the city's largest employer group, which contends that sharp rises in the unemployment compensation tax in recent years have become a heavy burden and a drag on the local economy.

Some employers who paid as little as $4.20 per employee to the District fund in 1972 saw the tax rise to $113.70 last year. This year the program will cost them $180 per employee.

One large employer, the Marriott Corp., saw its unemployment tax rise from $126,000 in 1974 to $266,000 in 1976, and has forecast that it would rise as high as $490,000 under the major's surtax proposal.

Board of Trade spokesmen contend the full 1 per cent surtax would not be needed if the city would stop paying any jobless benefits to people who were fired for gross misconduct, like Ed and Sam, as well as to those who quit their jobs voluntarily.

Eliminating such payments would save an estimated $11 million a year, and would remove nearly 8,000 of the 60,000 annual claimants from the program, the trade group said. About half of all claimants are residents of the Maryland and Virginia suburbs, previously employed by companies in the District.

The dispute, which flared at a recent hearing of the City Council's committee on employment and economic development, brought into sharp focus the question of whether unemployment compensation is something "owed" to people simply because they do not have jobs, for whatever reason, or whether it should be restricted to those whose joblessness came about through no fault of their own.

The dispute is heightened by the way the program is financed. Under federal low, the entire burden falls on employers, without any sharing of costs by employees.

Why then, Board of Trade spokesmen ask, should an employer continue --a wrongdoer who was fired or a person who has walked off a job that he could have kept?

Such people, if they are to get public support, should go on welfare, which is financed by taxes on everyone, the business group believes.

The organization is lobbying strongly for the adoption of rules barring payments to such people as its price for supporting other parts of the major's proposed legislation.

Council member Wilhelmina Rolark (D-eight), chairperson of the committee handling the legislation, would not predict the outcome. She said a meeting to consider the bill has been set for Feb. 1.

Those who favor the existing system --man of the D.C. Unemployment Compensation Board -- believe that it has built-in restraints that prevent most abuses.

The longest anyone can stay on unemployment compensation is 34 weeks, and all claimants must actively seek work during that time. Those who quit or had been fired from their previous jobs are disqualified from receiving benefits for 5 to 10 weeks, and forfeit any future right to collect payments for that length of time, Oldham said.

The disqualification periods are set by hearing examiners, and a claimant's former employer can participate in the hearings in an attempt to curtail benefits, Oldham said.

People with tarnished job records usually have a harder time than others getting a new job, and need to support themselves and their families during the search for it, Oldham said.

In many instances, Oldham noted, people who are listed as having quit their jobs voluntarily may actually have been told by their employers to quit or they would be fired. Such people usually quit so their job records will be clear, Oldham said, and it would be heartless to exclude them from benefits.

Unemployment compensation began as a program of Franklin D. Roosevelt's New Deal in 1938, when the nation was emerging from the Great Depression, with millions unable to get jobs.

While benefits are drawn from taxes levied on employers by the 50 states and the District of Columbia, the administrative costs of the program are borne by the U.S. government, which sets basic nationwide standards -- but not the levels of benefits and taxation.

In 1972, the way benefits are calculated was liberalized, leading to a 33 per cent rise in payments during a single year.

The growth in payments over the past 10 years has been startling.

In 1967, D.C. jobless benefit payments totaled $7.6 million. By 1972, they reached $22.3 million. By 1974, they were $34.9 million. In 1976, the last year for which full figures are available, they topped $61.5 million.

The growth of local payrolls, which are taxed to raise the money for the fund, was much slower. Here are the figures: 1967, $1.9 billion; 1972, $2.6 billion; 1974, $3.1 billion; 1976 $3.3 billion.

Between 1972 and 1977, the average weekly benefit paid to nearly 60,000 annual claimants rose from $70.86 to $98.73, with a maximum weekly payment in 1977 of $148. The maximum rose to $160 on Jan. 1. About one-quarter of all claiments collect the maximum.

For most claimants, the jobless pay is half of previously weekly earnings, and is tax free.

Before the fund's severe cash drain began in 1972, the District taxed each employer under a formula that reflected its experience in the compensation program.

With taxes then levied only on the first $4,200 of each employee's wages, companies that had stable work forces and sent few people to the unemployment office paid the District just 0.1 per cent of the payroll in taxes, or $4.20 per employee. Companies with a heavy employee turnover and a bad record at the unemployment office paid 2.7 per cent, or $113.40 per employee.

Because of the heavy cash drain that began during the 1974 recession, all employers were forced to pay the 2.7 per cent tax rate. On Jan. 1, under a new federal law, employers began paying taxes on the first $6,000 of each worker's wages. That means the basic tax per employee has risen to $162.

However, to start collecting some of the 62 million owed by the District fund, the Treasury added an extra 0.3 per cent tax on city payrolls starting Jan. 1. That pushed the total tax to $180 per employee.

The new legislation, which the Board of Trade had a hand in shaping, would restore the old system of levying taxes based upon each employer's experience in the compensation program.

When the fund is in solvent condition, as it was before 1972, the taxes would range from 0.1 per cent for employers with the best record to 4 per cent for those with the worst. When the fund is in poor shape, as it is today, the tax would range from 0.1 per cent to 4.5 per cent, with a larger proportion of employers paying at the higher rates.

If this plan were to go into effect --without the major's proposed 1 per cent surtax -- an estimated 34 per cent of the city's employers would be taxed at the same rate as today, while 28 per cent would pay higher rates. The surtax would mean that 62 per cent of all employers would have their rates raised.

As now drawn, the major's legislation seres "not to correct the evils of the system but, once again, to simply refinance the fund, so it can continue doing business as usual," A. George Cook, president of the Washington Parking Association, has contended. Plainly put, Cook said, this is "a rip-off."

The D.C. Tax Revision Commission, which recently proposed an extensive overhaul of the city's tax programs, had sharp words and proposed remedies for the unemployment compensation program.

Given the growing level of benefits and the fixed level of taxation to finance them, "the District's funding system is inherently unstable."

"In fact," the commission report continued, "such a funding system can be said to be dangerous during periods of low employment and downright disastrous during periods of high, or even moderate unemployment."

The commission sided generally with the Board of Trade's position. And, more fundamentally, it urged the city to attach the tax rates for future years to some kind of index, so the fund's income increases fast enough to pay claims from current revenues.