Obama, Bush and the cost of hiring someone
Earlier this week, The Wall Street Journal ran an op-ed by the president of Bogen Communications, a small business in New Jersey, titled simply “Why I’m Not Hiring.” In it, he describes his company’s median worker in terms of income — and why it costs so much to employ her relative to the pay she takes home (subscription required):
She makes $59,000 a year — on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay.
Before that money hits her bank, it is reduced by the $2,376 she pays as her share of the medical and dental insurance that my company provides. And then the government takes its due. She pays $126 for state unemployment insurance, $149 for disability insurance and $856 for Medicare. That’s the small stuff. New Jersey takes $1,893 in income taxes. The federal government gets $3,661 for Social Security and another $6,250 for income tax withholding. The roughly $13,000 taken from her by various government entities means that some 22% of her gross pay goes to Washington or Trenton. She’s lucky she doesn’t live in New York City, where the toll would be even higher.
Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest — $9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally.
Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers’ comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally’s Medicare and $3,661 for her Social Security.
When you add it all up, it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally’s job each year.
Economists have a name for this difference between the cost of employment and the employee’s take-home pay and benefits: the tax wedge. The $74,000 it costs Bogen to employ “Sally” is not the prevailing market wage for her job; that would be closer to the $56,000 she takes home in pay and benefits. The remaining $18,000 is the tax wedge that government drives into the labor market and, generally speaking, the higher the tax wedge, the lower employment will be.
There are obvious implications for employment in all the Obama-Pelosi-Reid policies that point to higher taxes — as the Bogen president put it in his op-ed:
As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company’s vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment.
A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government’s message is unmistakable: Creating a new job carries a punishing price.
But the op-ed also got me thinking in a different direction: How did the tax wedge change during the last decade?
A steady chorus tells us that the Bush tax cuts of 2001 and 2003 were primarily for the benefit of “the rich.” That ignores the fact that rates fell across all income-tax brackets and that the share of all federal income taxes paid by “the rich” rose. But it also ignores what happened to the tax wedge.
The Organization for Economic Cooperation and Development, a kind of club for industrialized countries based in Paris, compiles tax-wedge information annually. You can see a graph for its data from 2000 to 2009 here which shows comparisons not only across time and countries, but for different types of taxpayers: single mothers, two-earner families with no kids, etc.
The OECD notes that tax wedges shrunk in 2009 for countries like the U.S. in large part because wages fell due to the financial and economic crisis. So, to make sure I’ve not included any effects from the recession, I’ve compared the U.S. tax wedge from 2000 to 2007.
The biggest change, by far, was for a single parent of two kids earning two-thirds of the average wage. The tax wedge for that person fell by nearly 40 percent to just 5.8 percent. The next biggest change was for a one-income married couple with two kids earning the average wage; their tax wedge fell by about one-sixth to 17.4 percent.
On down the line it went, with the degree of change generally decreasing as a household’s size fell and its income rose.
And, uniformly, the biggest tax-wedge changes came in the 2003 tax year — that is, when the Bush tax cuts finally took full effect. That’s no doubt part of the reason why, from June 2003 (the first full month after the tax cuts were signed into law) through the end of 2007, the U.S. created 8.1 million net new jobs.
Just something to remember the next time you hear people talking about those darned “tax cuts for the rich.”
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151 comments Add your comment
josef nix
August 13th, 2010
4:14 pm
RW
Truly offensive at Jay’s? What did he do…?
RW-(the original)
August 13th, 2010
4:16 pm
josef,
It wasn’t Paul. You can go to the last page that only has four comments on it and see who he’s talking about. I don’t want to give the name and have a search show up over here.
booger
August 13th, 2010
4:17 pm
I do not think the extention of the tax breaks will have a large effect on hiring or the economy. I think most businesses have written written this off already. I think it’s the other unknowns which are keeping both businesses and consumers from sticking their necks out. Potential new government regulations, cap-and trade sitting in the wings, and all the unknowns associated with it, the hugh issue of a potential VAT, the potential for a double dip recession, the potential for deflation. On top of all of that, we have a deficit commission, which is code for new tax commission, working away to come up with Lord knows what.
Employers hire and expand when they have some reasonable expectation that they can grow their business. When the government finally decides they have taxed and regulated enough, the consumers will return, followed by business growth and increased employment.
In the meantime, Obama could go a long way toward helping by lifting the ban on drilling in the Gulf. This would put nearly 100,000 people back to work, and prevent further rigs from moving to friendlier countries.
Kyle Wingfield
August 13th, 2010
4:17 pm
Jefferson: “Better safe than sorry” — pretty good summation of why employers aren’t hiring right now.
Btw, the WSJ surveyed 53 economists about potential policies. Two key takeaways:
“Despite the continued challenging conditions, 30 out of 48 economists who answered the question said the economy didn’t need any more fiscal or monetary stimulus. Six economists said more fiscal stimulus was necessary, while five want more monetary stimulus from the Federal Reserve and seven said that the economy could use both.”
and
“The economists, though, generally didn’t support the idea of ending Bush-era tax cuts, which will expire at the end of this year unless Congress acts. Just three respondents said that the tax cuts on individual income should be allowed to expire for everyone. Thirty-two economists said they should all be extended, while 11 said they should be extended for people making less than $250,000 a year—the policy option backed by the Obama administration.”
Full article at: http://bit.ly/bKoDFK
Baffled
August 13th, 2010
4:22 pm
Politicians know we Americans don’t take the time to educate ourselves on the content of pending legislation. Instead, we rely on talking heads from cable channel chatter(MSNBC, Fox News, Rush Limbaugh, CNN and an assortment of other air head host and their partisian guests on Sunday Morning politalk shows) to inform us. We praise politicians(game show host) as being brilliant because they espouse our views and positions, but acutually we’re buying fool’s gold.
Baffled
August 13th, 2010
4:29 pm
Kyle, are you saying David Stockton(Reagan’s Budget Director), GW’s first Treasury Secretary, Mr. Greenspan, Mr. Rubin et. al. are all wrong whent they say let the tax cuts expire.
Grand Forks
August 13th, 2010
4:30 pm
“Grand Kleagle Forks, your sheets are ready.”
But I’m not a democrat. Only democrats can serve in the Klan.
CJ
August 13th, 2010
4:30 pm
“CJ: The $18,000 doesn’t include the health insurance costs that he mentions.”
I stand corrected. The blizzard of benefit costs—unrelated to the writer’s point about the costs of local, state, and federal government—threw me off.
And yes, I do think the employer should investigate costs specific to his business. That’s my point. If he’s truly not hiring because of “uncertainties” arising out of Democratic policies (I doubt it), then he hasn’t done his homework.
And yes, I know that you and the conservative media are desperately trying to convince voters that Dems are lying and really intend to raise taxes on everybody after the election is over, but it’s not gonna happen (unless Senate Republicans block an up or down vote on the extension of tax cuts for incomes below $250,000—thereby having been responsible for any resulting tax increases).
On the other hand, if conservatives (so-called) cared as much about the deficit as much as they claim, then they’d be shouting from the roof tops to let the Bush tax rate cuts expire for incomes above $250,000 (households in that category would still benefit from the cuts at the lower tax rates). Keeping these cuts in effect would have little or no stimulative effect on the economy, and would cost trillions over the course of another decade.
josef nix
August 13th, 2010
4:30 pm
RW
Thanks…if it’s who I think it is, he’s “got deep psychological problems stemming back to early childhood!” Heard he took a swipe at me last night for asking after Hillibilly…oh, well, I guess he’s happy now…
This is my first time here, and seems like a rather civil lot with good manners,,,I’m afraid the topic is somewhat beyond me…I just flat don’t understand economics…
Grand Forks
August 13th, 2010
4:31 pm
What’s gonna be hilarious is when democrats beg Obozo to extend the Bush tax cuts. Just another vindication for Bush.
Grand Forks
August 13th, 2010
4:32 pm
“This is my first time here, and seems like a rather civil”
Yeah, it’s because the psychos reside over on Kookman and Tucker’s blogs.
Grand Forks
August 13th, 2010
4:34 pm
“are all wrong whent they say let the tax cuts expire.”
Yes.
RW-(the original)
August 13th, 2010
4:35 pm
josef,
That’s not the one. I guess I wasn’t clear, but if you go to that last page and read Paul’s comment you’ll see who it is he complained about. The one that took a swipe at you is just surly old guy. He takes shots at me nightly and he gets worse as the night goes on if you get my drift.
Larry
August 13th, 2010
4:35 pm
Much of the talk about tax rates is politically slanted, but Mr. Fleischer isn’t exactly the icon of objectivity.
The amount of an employee’s federal, state and local income tax withholding is an employee, not company, expense. The reasons an employee would file a specific W-4 are personal and this guy was way out of line for even mentioning it.
The largest expense he listed is for company benefits which are driven by the job market, not any government agency. The actual government expense Bogen Communications Inc. pays for Sally is $5527 per year, which is 9 per cent of her salary, not the 33 per cent Fleischer claims. Maybe he didn’t notice we are in an employers’ market.
Had he spent time running his company instead of writing politically oriented editorials, perhaps Bogen wouldn’t have been de-listed by NASDQ when their preferred stock fell to a fraction of one cent.
Take your advice from whomever you will, but it doesn’t take much talent to run a company into the ground. If it’s all the same to you, I’ll listen to Warren Buffet.
Grand Forks
August 13th, 2010
4:36 pm
“Well I see Paul got Jay B’s blog shut down. Good job, Paul”
Hey Bookman blog retards, can you please take your garbage over to Tucker’s blog?
Grand Forks
August 13th, 2010
4:38 pm
RW-(the original) & josef nix
Bookman is a joke. No one over here gives a crap about what goes over there. 95% of the people who blog over there are out of work welfare baby mamas.
Bottom line: It’s pretty civil over here. GO AWAY.
Grand Forks
August 13th, 2010
4:39 pm
TaxPayer
Awe, poor whittle bed wetter. Did daddy shut down his blog? You’re in foreign territory comrade and Bookman isn’t here to play nanny for you.
Lil' Barry Bailout
August 13th, 2010
4:39 pm
Kyle, you’re just annoying the libtards with all these facts; they have their carefully constucted worldview and it’s impervious to data.
josef nix
August 13th, 2010
4:40 pm
Grand Forks
Aren’t you just the one..,
Mr Wingfield…
Are we welcome here or should we go away?
RW
Oh, the one I was zeroing in on is a left winger who’s announced he’s going home…
RW-(the original)
August 13th, 2010
4:40 pm
GF,
I’m sure if Kyle feels I’m uncivil he’ll ask me to leave and I’m also fairly sure that’s his decision not yours.
Wahoo
August 13th, 2010
4:41 pm
I just flat don’t understand economics…
__________________________
Josef – you’re not by chance a member of Congress, or the President, are you? Just kidding – it was too easy – couldn’t resist.
CJ
August 13th, 2010
4:41 pm
“Caterpillar certainly doesn’t – they booked a $100m charge in 1Q directly related to the health reform, and they weren’t the only one.”
First, this isn’t an uncertainty.
Second, this charge is related to the fact the Caterpillar will no longer be able to write off government subsidies for Medicare Part D as a tax deduction. Currently, first they get the subsidy…then they get to deduct the subsidy from their profits for tax purposes. Under the Affordable Care Act, they still get the government subsidies, but they can no longer deduct them.
Small government advocates should be rejoicing at the loss of the tax deduction, and perhaps, advocating on behalf of ending the corporate welfare subsidy altogether. The lack of consistency is perplexing.
Lil' Barry Bailout
August 13th, 2010
4:42 pm
HDB: why was the income differential greater during the Bush years?? The incomes of blacks fell and their poverty rates rose 7.9 per cent, compared with 5.1 per cent for whites.
———————
You’ll have to either ask the blacks or show us which law or policy of our President Bush mentions “black” and “white”.
Didn’t think so.
HDB: Racist.
Southern Comfort
August 13th, 2010
4:43 pm
Wow, I like the way Kyle’s contributors roll out the welcome mat.
Don't forget
August 13th, 2010
4:44 pm
Well, it was civil before Grand Forks showed up.
TaxPayer
August 13th, 2010
4:46 pm
Grand Forks,
You missed me, didn’t you.
RW-(the original)
August 13th, 2010
4:47 pm
Well, it was civil before Grand Forks showed up.
Don’t forget,
That’s what I was thinking too.
RW-(the original)
August 13th, 2010
4:50 pm
SoCo,
DId you see that your Alma Mater can’t even spell Mississip(p)i?
(p) is the one they left out.
Wahoo
August 13th, 2010
4:50 pm
On the other hand, if conservatives (so-called) cared as much about the deficit as much as they claim, then they’d be shouting from the roof tops to let the Bush tax rate cuts expire for incomes above $250,000 (households in that category would still benefit from the cuts at the lower tax rates).
________________________
CJ, you might have a legitimate point if Congress and the Administration had to date shown the slightest capability of using these tax dollars to reduce the deficit. But they haven’t, and you know it.
josef nix
August 13th, 2010
4:53 pm
Wahoo….
Heh, heh! Not yet anyway!
Southern Comfort
August 13th, 2010
4:53 pm
RW
Where’d you come across that story? I’ll have to check that out when I get back home. If it’s the Univ. of AL, then it wouldn’t be my Alma Mater. If it’s Alabama State Univ, then I’m guilty as charged.
RW-(the original)
August 13th, 2010
4:56 pm
SoCo,
You’re off the hook then
@@
August 13th, 2010
4:58 pm
Kyle, you do have a way of putting economics in terms that can be more easily understood.
Tax wedge, huh? Could call it a wedge tax since it comes between the employer and employee.
Everyone BUT the government gets a wedgie.
Southern Comfort
August 13th, 2010
4:58 pm
But still just as ashamed anyway.
josef nix
August 13th, 2010
5:00 pm
SoCo, RW
Notes from a Native Son…don’t nobody know how to spell it. It’s spelt just like it sounds…Msippi… (apologies to our great writer, Richard Wright!)
barking frog
August 13th, 2010
5:04 pm
When the tax cuts for high earners are discussed,
we should also remember tax cuts for low earners.
GW returned/rebated about $500 per earner for
two years. This money was spent immediately
creating instant stimulus. High earners still enjoy
their tax cut, the stimulus package was distributed,
all to no avail, maybe the little guy should be
included again.
josef nix
August 13th, 2010
5:07 pm
barking frog
@ 5:04
I would agree with that…it puts a cash flow immediately into the consumer economy…and as Soco so often says, our economy is predicated on as many people “buying stuff” as you can get…
Jefferson
August 13th, 2010
5:25 pm
And the last few years with borrowed money…
Intown
August 13th, 2010
5:25 pm
Every time I hear this argument it just sounds like a bunch of whiney businessmen who don’t like something they can’t control. the bottom line is, if the guy needs to hire Sally, he’s going to hire Sally. If he doesn’t, he doesn’t. It’s not Obama’s freakin’ fault. If you want to balance the budget, then the tax cuts gotta go … on schedule as legislated by REPUBLICANS.
Del
August 13th, 2010
5:43 pm
I’ll bet that Obama and the Dem’s extend the Bush tax cuts. They’re already in enough trouble and letting the tax cuts expire in this economy would carry too much political risk.
booger
August 13th, 2010
5:43 pm
Intown,
The tax cut expiration will not make a dent in the budjet or the deficit. They are all out of control.
Le Bourgeois
August 13th, 2010
5:54 pm
I think this column may have blown Mr. Tucker’s mind, if she read it. Kyle used factual economics to prove his point about the need for extending the tax cuts. Ms. Tucker can only understand race, capitalist oppression, and wrongly applied elementary math to back up her flawed opinions on the subject. Nicely done Kyle. So far I have not not seen enough evidence to change my mind against extending the tax cuts, only more information that supports it.
barking frog
August 13th, 2010
5:55 pm
If Obama would drop Biden and put Oprah on the
ticket in 2012 and get elected I think they might
give us all cars. O/O 2012.
Grand Forks
August 13th, 2010
5:58 pm
“Well, it was civil before Grand Forks showed up.”
Uh huh.
barking frog
August 13th, 2010
5:59 pm
If the tax cuts are extended, and the government owns
GM, will the government be cutting its own taxes?
Grand Forks
August 13th, 2010
6:00 pm
“You missed me, didn’t you.”
Yeah, just like I miss having kidney stones.
Grand Forks
August 13th, 2010
6:01 pm
“Wow, I like the way Kyle’s contributors roll out the welcome mat.”
As opposed to Kookman’s cult followers?
Grand Forks
August 13th, 2010
6:02 pm
“’ll bet that Obama and the Dem’s extend the Bush tax cuts.”
I do too, and it’s gonna be funny to watch Rachel Madcow throw a hissy on PMSNBC. I also can’t wait for Kieth Olberqueer to start crying on tv. His 200 viewers will be shocked.
Grand Forks
August 13th, 2010
6:03 pm
“I think this column may have blown Mr. Tucker’s mind, if she read it.”
She doesn’t read and she also can’t spell.
Grand Forks
August 13th, 2010
6:03 pm
“budjet”
Is that Budweisers new airline?