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
6:06 pm
I bet Mr. Wingfield and Sister Cynthia wish the Bruin would go fishing more often!
Grand Forks
August 13th, 2010
6:08 pm
“I bet Mr. Wingfield and Sister Cynthia wish the Bruin would go fishing more often!”
Well, it would keep the Kookman cult followers away from this blog. Say hi to ScamVet for me.
Grand Forks
August 13th, 2010
6:09 pm
“HDB: Racist.”
Yep, she is a racist. She talks about race more than Msssssssssssssss. Tucker does.
josef nix
August 13th, 2010
6:10 pm
Grand Forks…
Have a little charity for us homeless refugees, would ya? Actually, though, several of us have missed you back home…
RW-(the original)
August 13th, 2010
6:14 pm
Have a little charity for us homeless refugees
Hurricane Paul sure did take its toll on us and we’re still not certain everybody made it out of there safely.
Grand Forks
August 13th, 2010
6:14 pm
josef nix
You know I’m just pulling your chain here. I know you and RW are not crazy people like some of the others on Bookmans blog. Sometimes I just write things to get a rise out of people just to see how they’ll react. Ole Bookman couldn’t handle all the whining and banned me. He never did say WHY he banned me. I still pop in there every now and then to read some of the comments. It’s funny to when @@ tells me about how some of them still talk about me.
Grand Forks
August 13th, 2010
6:15 pm
“Hurricane Paul sure did take its toll on us and we’re still not certain everybody made it out of there safely.”
So what happened to make Jay shut down the blog? I mean, I did notice 22 pages yesterday.
Grand Forks
August 13th, 2010
6:17 pm
Man up, man child Obama.
76 Percent Say Time for Obama to Take Responsibility
Despite more voters faulting former President Bush’s policies for the country’s economic woes, most American voters think it is time for President Obama to stop blaming Bush.
http://www.foxnews.com/politics/2010/08/12/fox-news-poll-percent-say-time-obama-responsibility/
josef nix
August 13th, 2010
6:18 pm
RW
Yeah, the EOI seems to be scattered to the winds…
Grand Forks…
Oh, you left your mark, don’t doubt that!
Grand Forks
August 13th, 2010
6:18 pm
Obama is a Muslim.
Obama to host Ramadan dinner at the White House
President Obama will host an iftar — the special evening meal observed during Ramadan — on Friday night in the White House dining room.
http://washingtonscene.thehill.com/in-the-know/36-news/5549-obama-to-host-ramadan-dinner-at-the-white-house-
Grand Forks
August 13th, 2010
6:19 pm
“Oh, you left your mark, don’t doubt that!”
Well yeah, I mean it’s been over 4 months since I got banned and the left wing retards are still talking about me. Guess I’m as “irrelevant” as Rush.
RW-(the original)
August 13th, 2010
6:21 pm
GF,
Somebody was writing some pretty vile stuff and Paul complained about it to the AJC so they just shut it down. I’m sure Jay B had nothing to do with that.
Grand Forks
August 13th, 2010
6:22 pm
“Somebody was writing some pretty vile stuff and Paul complained about it to the AJC so they just shut it down.”
And who was this vile person?
Grand Forks
August 13th, 2010
6:23 pm
Gotta love the Brits.
The stunning decline of Barack Obama: 10 key reasons why the Obama presidency is in meltdown
The last few weeks have been a nightmare for President Obama, in a summer of discontent in the United States which has deeply unsettled the ruling liberal elites, so much so that even the Left has begun to turn against the White House. While the anti-establishment Tea Party movement has gained significant ground and is now a rising and powerful political force to be reckoned with, many of the president’s own supporters as well as independents are rapidly losing faith in Barack Obama, with open warfare breaking out between the White House and the left-wing of the Democratic Party. While conservatism in America grows stronger by the day, the forces of liberalism are growing increasingly weaker and divided.
http://blogs.telegraph.co.uk/news/nilegardiner/100050412/the-stunning-decline-of-barack-obama-10-key-reasons-why-the-obama-presidency-is-in-meltdown/
josef nix
August 13th, 2010
6:23 pm
RW
I’m sure he didn’t either…there he was well on the way to topping 5000…I think it was a palace coup myself!
Grand Forks
August 13th, 2010
6:28 pm
So popeye wrote something that angered Paul. Yeah, I didn’t see anything too crazy other than something about @@ using the toilet.
Southern Comfort
August 13th, 2010
6:29 pm
GF
I’ve noticed you say things just to rile people. I’m sure it serves a purpose somewhere. If I had a blog, you’d be welcome to post there.
RW-(the original)
August 13th, 2010
6:30 pm
And who was this vile person?
GF,
It was a new name, but it sounded like one of our resident wannabe comedians.
josef,
At least now we have a record that’ll be within reach next time he vanishes. If we got to 5K it might have been tough to top.
Left wing management
August 13th, 2010
6:33 pm
And why do we need a GOP spokesman writing columns for the paper?
Looks like a clear violation of the principle of non-partisanship to me.
CJ
August 13th, 2010
6:33 pm
“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.”
The CBO, the JCT, and the Medicare Trustees disagree with you.
Grand Forks
August 13th, 2010
6:34 pm
“It was a new name, but it sounded like one of our resident wannabe comedians.”
Well Paul referred to popeye. Maybe I should go through 25 pages of comments from people who need to seriously get a life.
josef nix
August 13th, 2010
6:34 pm
RW
Went back and looked it over…the offensive posts must have been deleted…I didn’t see any with the commedienne’s name…
Grand Forks
August 13th, 2010
6:35 pm
“I’ve noticed you say things just to rile people.”
I sometimes go over to the sports blogs and call UGA fans, UGAY fans just to anger them. Boy, does it work.
Grand Forks
August 13th, 2010
6:36 pm
“I’m sure it serves a purpose somewhere.”
If I can anger a left winger I’ve done my job.
Grand Forks
August 13th, 2010
6:38 pm
Southern Comfort
I once blogged as “Forrest Gump was the most famous Bama grad” and man alive, did the Bryant cult followers flip out. One hillbilly from Tuscaloser actually challenged me to meet him at a bar and I told him that I don’t do gay bars. He flipped out and threatened to find me. Guess he didn’t realize that hound dogs can’t sniff out others on a computer.
Southern Comfort
August 13th, 2010
6:40 pm
I’d have loved to see that. Do what you do and be proud!!
josef nix
August 13th, 2010
6:41 pm
Grand Forks
Get your slurrs straight…Tuscaloosa is lowland…not hillbilly! ISH
RW-(the original)
August 13th, 2010
6:41 pm
josef,
It could be they were deleting them and then shut it down when they got finished because the total post count never changed after they closed it so I may have jumped the gun when I said they left them up.
RW-(the original)
August 13th, 2010
6:43 pm
GF,
Paul mentioned popeye but then he mentioned the perp further into his comment.
Grand Forks
August 13th, 2010
6:45 pm
RW
I was looking for the crazy comments that shut down that blog. Must have been pretty insane.
Grand Forks
August 13th, 2010
6:45 pm
“Get your slurrs straight…Tuscaloosa is lowland…not hillbilly! ISH”
Ok, well the trailer parks sure do look perty.
josef nix
August 13th, 2010
6:46 pm
RW
Inquiring minds want to know…
Wahoo
August 13th, 2010
6:50 pm
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.
___________________
No offense, CJ, but I’m not sure you understand what makes small government advocates tick well enough to know what we should or shouldn’t be rejoicing about. What we’re talking about is jobs, and clearly Cat doesn’t think this change is going to benefit their business and therefore it will negatively impact hiring decisions. Assuming a status quo environment, as a small government advocate, I’m not in favor of government doing something that is going to make it harder for a large employer and one of our few manufacturing exporters to operate or want to hire in a 9.5% unemployment environment.
As for eliminating corporate welfare – in general I am supportive of it, but that’s a completely different topic. This example of corporate welfare wouldn’t even exist if not for Medicare, which, as a small government advocate, I would delight in seeing phased out over time to shore up the nation’s balance sheet (since the program has trillions of unfunded, off-balance sheet liabilities associated with it). But phasing out Medicare is not going to happen anytime soon, so while seemingly inconsistent to you, I elect to support the side of the argument that will let Cat put more people to work. You don’t. Why is that?
97 degree yogurt
August 13th, 2010
6:52 pm
Grand Forks,
Are you a baser or do you work at the Red Pepper?
RW-(the original)
August 13th, 2010
6:56 pm
Inquiring minds want to know…
Want to know what?
josef nix
August 13th, 2010
6:59 pm
RW
What was said that had us thrown out of our home…
Grand Forks
August 13th, 2010
7:02 pm
97 degree yogurt has the IQ of a carrot.
RW-(the original)
August 13th, 2010
7:04 pm
josef,
Paul got us thrown out by complaining. It’s not like anybody was going to decide they wanted to pour through a few thousand comments to see what was going on.
But it had to do with a Presidential love child between the current office holder and the namesake of the blogger along with graphic methodology in reference to the conception.
97 degree yogurt
August 13th, 2010
7:10 pm
I was guessing you would say sugar beet based on your location, but your response answers my question.
Instead of wasting your time copying, pasting and posting inane comments, maybe you should shower up and go look for a date at Menard’s–or cruise on down University Ave looking for UND girls.
TaxPayer
August 13th, 2010
7:14 pm
Yeah, just like I miss having kidney stones.
To each his own.
josef nix
August 13th, 2010
7:15 pm
SoCo
Got it!
RW
Well, no need to further guess who THAT was!
Le Bourgeois
August 13th, 2010
7:16 pm
I should have said Ms. Tucker, not Mr. Tucker. She is clearly a woman…a very angry woman.
@@
August 13th, 2010
7:19 pm
Perhaps I should pay closer attention to what goes on over at jay’s
I just figured the comment total had maxed out.
Somebody said something about me having to use the toilet?
It might’ve been me. Sometimes I inform everyone I have to go tinkle and will be right back. I don’t show back up for hours.
Just my way of having fun.
Grand Forks
August 13th, 2010
7:19 pm
97 degree yogurt
Like I said, I like to get people riled up. Just messing with you, comrade.
Grand Forks
August 13th, 2010
7:21 pm
“vSomebody said something about me having to use the toilet?”
popeye wrote something about you “having to tinkle” and how it turned him on. Gross if you ask me. Guess he’s into golden showers. Annnnnnnnyhoo, enough of that.
Grand Forks
August 13th, 2010
7:21 pm
“She is clearly a woman…a very angry woman.”
As are most racist left wingers.
CJ
August 13th, 2010
7:25 pm
“No offense, CJ, but I’m not sure you understand what makes small government advocates tick well enough to know what we should or shouldn’t be rejoicing about. What we’re talking about is jobs, and clearly Cat doesn’t think this change is going to benefit their business and therefore it will negatively impact hiring decisions.”
I can confirm that I don’t know what makes small government advocates tick, because despite the rhetoric, such advocacy appears inconsistent when details are discussed. I guess I’m trying to say that that many, if not most, small government advocates don’t care about small government at all. In addition, the overwhelming evidence indicates that most couldn’t care less about deficits either.
With regard to why CAT and other employers aren’t hiring, the notion that it’s caused by uncertainty created by the Obama administration and the Democratic congress is a nonsensical right-wing talking point with zero empirical evidence to support it—none. Business, including the U.S. Chamber of Commerce supported TARP and supported the stimulus. In addition, the markets continued to grow in the immediate aftermath of the passage of the Affordable Care Act and in the immediate aftermath of passing Financial Regulation reform.
This “business won’t hire because of policy uncertainty” argument is 100 percent speculative (for political gain) and 0 percent supported.
CJ
August 13th, 2010
7:26 pm
I hate it when I forget to close the italics tag.
@@
August 13th, 2010
7:40 pm
eewwwww!!!!
I must’ve missed that too.
Wahoo
August 14th, 2010
5:15 pm
The CBO, the JCT, and the Medicare Trustees disagree with you.
__________________
How do you figure? The country is expected to run in excess of a trillion dollar deficit for years. Taking the increased tax revenue attributable to just those making over $250K isn’t going to materially reduce that, since there simply aren’t that many people that make that amount of money. And even if it were the case, there’s no evidence that the Administration and Congress won’t turn around and spend the next dollar of tax revenue that they receive on something unknown to the JCT or CBO, leaving the deficit unaffected. Have you detected some degree of spending restraint that I have overlooked? If so, please share.