Archive for October 28th, 2008
October 28th, 2008
From the Wall Street Journal:
Imagine this: Barack Obama proposes a Social Security payroll tax cut for low earners. Workers earning up to $8,000 per year would receive back the full 6.2% employee share of the 12.4% total payroll tax, up to $500 per year. Workers earning over $8,000 would receive $500 each, with this credit phasing out for individuals earning between $75,000 and $85,000.This tax cut would make an already progressive Social Security program even more redistributive. Under current law, a very low earner receives an inflation-adjusted return on his Social Security taxes of around 4%. That’s a good return, given that government bonds are projected to return less than 3% above inflation. A high-earning worker, on the other hand, receives only around a 1.5% rate of return. Under Sen. Obama’s proposal, returns for very low earners would rise to around 6% above inflation — about the same return as on stocks, except with none of the risk. Compounded over a lifetime’s contributions, the difference in the “deal” offered to workers of different earnings levels would be extreme.
While Social Security has always been progressive, many would say this plan goes too far and risks turning Social Security into a “welfare program.” Low earners receive more in benefits than they pay in taxes — meaning their “net tax” is already negative — and Mr. Obama’s plan would increase net subsidies from the program.
Moreover, this payroll tax cut plan would reduce Social Security’s tax revenues by around $710 billion over the next 10 years. If made permanent, the Obama tax cut would increase Social Security’s long-term deficit by almost 60% and push the program into insolvency in 2034, versus 2041 under current projections.
To fill the hole in Social Security’s finances, Mr. Obama would increase income taxes on high earners and pour that money into Social Security. This would be the first time that income tax revenues have been used to finance Social Security, which has always relied on its own dedicated payroll tax to differentiate itself from other government programs. Filling the gap with higher taxes on high earners would further increase Social Security’s progressivity, pushing it closer toward a welfare-program approach.
Now, you haven’t heard Mr. Obama describe anything like this plan. If you had, it’s likely you wouldn’t support it. But it’s almost exactly what his headline “tax cut” would do. The Obama campaign took the idea described above and made it much more complicated.
Under the plan, which he claims would cut taxes for 95% of Americans, provides an income tax credit worth 6.2% of earnings up to $8,000, for a maximum credit of $500 per worker or $1,000 per couple. The 6.2% figure is important, because it matches the employee share of the Social Security payroll tax. Because around a third of Americans currently pay no income taxes — a fraction that would rise to almost half under Mr. Obama’s plan, according to the Tax Policy Center — Mr. Obama’s tax credits would be refundable, meaning you could collect the credit even if you paid no income taxes.
While Mr. Obama calls his plan “Making Work Pay,” under standard economic assumptions his plan would actually discourage work for anyone earning over $8,000 per year. The tax credit itself would increase workers’ take-home pay, an “income effect” that reduces incentives to work. Moreover, for workers in the $75,000 to $85,000 income range, where the tax credit is phased out at five cents for each dollar of additional income, this would add five percentage points to their marginal tax rate.
So Mr. Obama has in essence proposed cutting Social Security taxes for low earners, which would shift the system toward a “welfare” approach and sharply increase its long-term deficit. To fill the funding gap, he will raise taxes on high earners and funnel the money into Social Security, making the system even more progressive and breaking a long tradition against funding Social Security with income taxes.
The complex way in which Mr. Obama structures and describes his plan would make it harder to administer than a straight payroll tax cut. But it is also more difficult for the typical American to understand. This may explain why he chose complexity over clarity.
Mr. Biggs is a resident scholar at the American Enterprise Institute in Washington, D.C. He blogs on Social Security policy at www.andrewgbiggs.blogspot.com.
October 28th, 2008
Here’s the story again about Corporate Taxes and how one candidate wants to raise them even further…from my previous blog.
While taxes are one element of a companies costs, it does have some bearing on what a company does regarding the location of manufacturing.
So what’s the story about corporate taxes? Are they too high or too low? Compared to what? How about compared to our our international competitors? So I did a little investigation from internet sources and here’s what I found:
A corporation will pay anywhere from 25% to 39% income tax depending on their taxable income. For example, if the income is $50-75,000 then the rate is 25%; if income is between $100-335,000, then the rate is 39% and drops to 35% if income is $18 million or more.
Then there is state taxes on corporations and in Illinois it’s a flat rate of 7.3%.
So for example, a small-medium manufacturer in the Rockford region making between $110-335,000 net income will pay 39% plus 7.3% or 46.3% of it’s income.
Don’t forget the Federal FICA rate on payrolls of 15.3% and State Unemployment Insurance of 3.4% of payroll. This amounts to 18.7% taxes on your payroll in our region.
Of course, many corporations own their own buildings and property and guess what, they pay taxes on that as well, I won’t even hazard a guess on that one….
I won’t include sales taxes that individuals pay for goods they purchase; in Europe they call this VAT.
So for our example, the corporation pays 46.3% tax on its income and 18.7% tax on it’s payroll.
I looked at the data from Wikipedia and here are a few examples of countries that are competitors to us:
China: Corporate: 25%; Payroll: 0%
India: Corporate: 30-40%; Payroll: 0%
Germany: 29.8% (ave.); 0% Payroll
Mexico: Corporate: 29%: Payroll: 0%
Ireland: Corporate: 12.5%; Payroll: 16.75%
UK: Corporate: 21-28%; Payroll: 23.8% (National Insurance).
As Wikipedia advises, these are guidelines, but it does make you think:Â should we raise taxes on corporations?
October 28th, 2008
The government Monday pledged to support labor-intensive enterprises and small- and medium-sized enterprises (SMEs) to protect jobs amid the global financial meltdown.
“The current global financial crisis has affected China’s employment situation, particularly export-oriented businesses,” Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, told a news conference.
“The government will help create jobs by encouraging development of labor-intensive industries, small- and mid-sized businesses, private companies and the service sector.”
Yin said the nation has formulated policies to bail out enterprises, including:
Increasing bank loans and raising export tariff rebates;
Working out favorable taxation, financing and other policies to encourage start-ups;
Providing more vocational training for laid-off workers to increase their chances of re-employment;
Establishing a pension system in rural areas and expanding the urban pension system to cover rural migrant workers.
Yin said the registered jobless rate for urban residents stood at 4 percent by the end of September, the same as the end of last year.
Experts said the result was commendable, given the challenging economic situation this year.
“It means that the country’s economy is still growing fast enough to generate jobs,” said Wang Dewen, an expert with the Institute of Population and Labor Economics affiliated to the Chinese Academy of Social Sciences.
The economy created 9.36 million jobs in the first three quarters, and another 4.09 million laid-off workers were re-employed, figures show.
The efforts include helping more than 1 million laborers from areas hit by a massive earthquake on May 12 in Sichuan province find new jobs.
Yet the registered urban unemployment rate, which excludes the vast majority of more than 200 million migrant workers, “far from reflects the true gravity that China faces in its job market”, Wang said.
The global credit crisis has taken a heavy toll on China’s export-oriented SMEs, which are magnets for rural migrant workers, he said.
Figures from the National Development and Reform Commission show that 67,000 previously profitable SMEs collapsed during the first half of the year. And two-thirds of the labor-intensive textile enterprises are facing restructuring.
In Dongguan, Guangdong province, half of the toy makers have closed down.
Those enterprises are major engines fueling employment in China, creating about 70 percent of new jobs every year, said Ding Dajian, an expert at the School of Labor and Human Resources at Renmin University of China.
“The collapse of such enterprises inevitably means grave job prospects for migrant workers,” said Ding.
Source: China Daily
October 28th, 2008
I got to thinking; when demand for products or services reduces, it is usual to see that business have reductions in workforce, i.e. layoffs. So with the election next week and no matter who wins, what are all these talkers, writers, comedians and gabbers going to do? What will they talk or write about? Their services will no longer be needed.
So will there be workforce reductions?
Maybe they could start making something and create new jobs!
October 28th, 2008
I went on a weekend trip using I-90 and O’Hare this past weekend and did my informal “recession watch” as I’ve done before. Mid-morning and mid-afternoon car travel. I again was amazed at the car and especially truck traffic in both directions on both days. Surely, if we really had a recession, wouldn’t the traffic be noticeably reduced?
The United terminal at O’Hare airport also seemed busy as in the past. I’ve done my share of driving in the past up and back to O’Hare, so I think I have a little experience in this observations.
So if we are in a recession, shouldn’t these indicators tell some of the story?
Or are my rose colored glasses in need of replacement?
