Welcome to Dartmouth's most influential daily
Each day, Dartblog and its team of alumni and students bring you news and commentary from Hanover and the world at large. Read our iPhone edition here.
This is an archived post. Please click here to see the latest entries.
President Obama Wants to Give Me $75k
President Obama’s new tax proposals would cut the payroll taxes on small businesses for the next one or two years in order that these enterprises increase employment. I am glad that the President wants to do this, but I can’t for the life of me figure out why he thinks many jobs will be created from the proposed tax rate changes.
As a matter of background, both the federal and state governments levy taxes on corporate payrolls. You might ask why the government taxes wages — taxes being a disincentive and all that — which has the immediate effect of reducing employment by making goods and services produced in this country more expensive compared to countries that don’t tax wages, but let’s leave that good question for another day.
Below is a wage report. As you can see from the circled items, governments oblige employers to pay various taxes on each dollar of employee wage payments (employees pay similar taxes, too):
An employer pays five different taxes on employees wages:
● Employer OASDI [Social Security]: 6.2%
● Employer Medicare: 1.45%
● Employer FUI [Federal Unemployment Insurance]: 0.6%
● NH Employer SUI [State Unemployment Insurance]: 2.8%
● NH Admin Contribution: 0.2%
● Total: 11.25%
The item that concerns the President (and me) is the first one: Employer OASDI, a 6.2% tax on salaries up to $106,800 (highlighted in yellow above). This tax funds the social security system. President Obama’s idea is to reduce this tax for a limited time period by 3%, from 6.2% to 3.2%. Such a reduction would save my business in Lebanon about $75,000 per year.
Not bad money, but would the measure serve to create many jobs?
I can’t conceivably see how. Hiring occurs based on an increase in demand, or an expectation of increased demand. How does the President’s idea get us there?
For me, this type of windfall is similar to, say, a drop in the cost of propane. It is nice to see a savings, but I can’t count on it lasting for very long. Besides, if I had any potential profit-earning projects in mind, I’d do them for their own sake, not because the President gave me a little bonus for a year or two.
Perhaps a business that is just scraping along with not an extra nickel of cash to spare, or with no available credit, would appreciate the extra flexibility — but I can’t see that this description applies to more than a small percentage of American businesses. Why give money to all business in the hopes of affecting just a few in the short term? The President might as well have Secretary Geithner drop bales of money from helicopters hovering over office parks for all the good that this program will do.
What would I do with the extra money? I could pay down some debt. Or buy some gifts for friends and family, or some luxury items. Or even invest money in the stock market. But create jobs in the next year or two? I can’t see that this tax reduction would make any difference to my business.
Addendum: Of course, if I don’t spend the $75,000 on some business project, and if I just keep it as profit, then the government will tax it at about $35%, so in truth my final take on President Obama’s $75,000 windfall would only be around $49,000.
Addendum: Herman Cain’s 9-9-9 proposal seems to want to end payroll taxes for both employers and for employees. In the image above, beyond what employers pay, employees themselves usually pay a a 6.2% tax on salaries up to $106,800 — though that tax has been temporarily reduced to 4.2% — plus anther 1.45% for Medicare.
October 18, 2009
When Love Beckoned in 52nd Street
We were at San Francisco’s BIX last evening, enjoying prosecco, cheese, and a bit of music. A full year of inhabitation in Northern California has unraveled to me no decent venue for proper lounging, but…
October 9, 2009
D Afraid of a Little Competish
So our colleague and Dartblog writer Joe Asch informed me that the D has rejected our cunning advertising campaign. Uh-oh. The Dartmouth is widely known as a breeding ground for instant New York Times successes,…
September 4, 2009
How Regents Should Reign
As Dartmouth alumni proceed through the legal hoops necessary to defuse a Board-packing plan—which put in unhappy desuetude an historic 1891 Agreement between alumni and the College guaranteeing a half-democratically-elected Board of Trustees—it strikes one…
August 29, 2009
Election Reform Study Committee
If you are an alum of the College on the Hill, you may have received a number of e-mails of late beseeching your input for a new arm of the College’s Alumni Control Apparatus called…
August 23, 2009
Fare Thee Well, Tom Crady
And now Dean Tom Crady has precipitously announced his departure from the College after only 20 months on the job. How to read this? By way of background, prior to coming to Dartmouth, Crady had…
May 31, 2009
Kangaroo Court, Indeed
In an interview with The Dartmouth, alumni-elected trustee T.J. Rodgers ‘70 explained his reasons for declining to participate in future evaluations of trustees up for “re-election,” namely the “kangaroo court” nature of such discussion in…