Brilliant Idea

A surtax on small business to pay for nationalizing health care:

Here’s the ugly income-tax math. First, Mr. Obama has promised to let the lower Bush tax rates expire after 2010. This would raise the top personal income tax rate to 39.6% from 35%, and the next rate to 36% from 33%. The Bush expiration would also phase out various tax deductions and exemptions, bringing the top marginal rate to as high as 41%.

Then add the Rangel Surtax of one percentage point, starting at $280,000 ($350,000 for couples), plus another percentage point at $400,000 ($500,000 for couples), rising to three points on more than $800,000 ($1 million) in 2011. But wait, there’s more. The surcharge could rise by two more percentage points in 2013 if health-care costs are larger than advertised — which is a near-certainty. Add all of this up and the top marginal tax rate would climb to 46%, which hasn’t been seen in the U.S. since the Reagan tax reform of 1986 cut the top rate to 28% from 50%.

Combined with the upcoming rise in the minimum wage, remember things like this when Democrats lie about how they’re interested in creating jobs.

40 thoughts on “Brilliant Idea”

  1. The current model to predict unemployment seems to not work very well in during a downturn. When the current situation is feed into older ways of calculating job loss it is more around 15-20% right now. This administrations is doing everything it can to prolong this recession right up until 2010. Then they are going to try and restore the economy with sane market principles just in time for the elections. Unfortunately, the Frankenstein of special interests they just created will rise up to destroy us all.

  2. Ok – so they strangle small busness with taxes, and yesterday in the news said they want to give struggling small biznes TARP money to help them.

    How can Obama find people to say this stuff with a straight face?!

  3. Obama already admitted in an interview that tax increases were not about increasing overall revenue amounts, but about “fairness”.

    Screw them all, I hope they end up hanging from lamp posts.

  4. The intent is to gain control over the economy, not to restore its status quo ante functionality.

  5. Obama already admitted in an interview that tax increases were not about increasing overall revenue amounts, but about “fairness”.

    That was actually in a debate, in a response to Charles Gibson.

  6. On the flip side of that coin, the same paper had an article arguing that rising health care costs are crippling small businesses.

    The problem is that small businesses are buying insurance on the open market with no bargaining power, much like individual health insurance. Faced with extreme costs, they either:

    1) Can’t offer health insurance, limiting their ability to hire.
    2) Can’t form at all, because the principals need and can’t get coverage.
    3) Can’t expand, because the cost of staff plus insurance is too high.

    Maybe raising overall taxes to offer “socialized medicine” would increase small business growth?

  7. Note the verbal trickery:

    This would hit job creators especially hard because more than six of every 10 who earn that much are small business owners, operators or investors, according to a 2007 Treasury study.

    But of course the interesting statistic isn’t the fraction of rich people who have or invest in small businesses, it’s the fraction of small businesses that would be affected by this tax. The answer: a vanishingly small fraction (only 2-3% of Americans make enough to be affected). So no, this tax does not “hit job creators especially hard,” it hits rich people especially hard.

  8. …this tax does not “hit job creators especially hard,” it hits rich people especially hard.

    Jim, you’re a fool. I’ve never been hired by a poor person.

  9. Maybe raising overall taxes to offer “socialized medicine” would increase small business growth?

    Yeah, and the captain of the Titanic should have just drilled some holes in the bottom of the boat to let the water out.

    So no, this tax does not “hit job creators especially hard,” it hits rich people especially hard.

    Jim, contrary to progressive dogma, rich people do not fill giant vaults with money and swim around in them like Scrooge McDuck. They buy things; generally a lot more things than poor people. All those things were made by other people. If you tax away rich people’s money, they can’t buy those things, and those other people lose their jobs.

    Look at the bizjet market. Thanks to the economic slump (and the press demonizing jet owners didn’t help any either) Textron has canceled their planned Cessna Columbus project, which would have brought upwards of 4000 jobs to the Wichita area.

    But hey, so long as taxes increase on those evil scary rich people, right?

  10. I’ve never been hired by a poor person.

    Your work is not exactly typical. If we relied on the handful of small businesses run owned by rich people to create all the jobs, we’d be in bad shape. Do you think your local coffee shop is clearing $280k in profit per owner? The local gardening or lawn mowing service? Burger joint? Gas station? Dress shop? House painter? Nonetheless, they employ a lot of people.

  11. If you tax away rich people’s money, they can’t buy those things, and those other people lose their jobs.

    Right. But if you tax away poor people’s money, or deny them health coverage so that you won’t have to raise taxes, you hurt them directly.

    Look at the bizjet market.

    Yes, look at the bizjet market. The argument that we shouldn’t tax the rich, so that they will be able to afford luxury toys that are only available to the rich, because they will generously pay the non-rich to build those toys for them, is hardly a persuasive one.

    A better version of this argument would be: don’t tax the rich, because they will invest in new factories building solar panels and cancer drugs (or whatever), which will hire lots of people and make the world a better place for everyone. But private investment doesn’t have to come from the rich; it can also come from the savings of the poor and middle class, assuming they have anything to save.

  12. Thanks to the economic slump (and the press demonizing jet owners didn’t help any either) Textron has canceled their planned Cessna Columbus project, which would have brought upwards of 4000 jobs to the Wichita area.

    Along that line, I recall Obama on the campaign trail talking about evil corporations screwing the tax payers by moving jobs overseas. So what has he done? He has taken over General Motors and Chrysler, put them in bankruptcy, and sold off major portions to the benefit of foreign companies.

    Now about this time, Jim and Gerrib might note that Saturn, which will close its Wilmington, Delware plant, was sold to American Roger Penske. But where is Penske looking to build Saturns? Renault Samsung Motors of Korea. I don’t blame Penske, but Obama certainly isn’t doing what he said he’ll do for American workers. Hummer was sold to China, no American workers needed there. Pontiac looks to be eliminated completely. Apparently nationalizing the automobile industry in the US means permenantly destroying US manufacturing capabilities and being fair to foreign countries by giving those countries a cheap price on any intellectual capital that remains, such as brand names and engineering drawings.

  13. Jim, you live in an economic fantasyland, in which rich people’s and business executive’s time is of no value, so they don’t need business jets, and that business jets do nothing to make the country more productive. Why not get rid of airplanes altogether?

    …it can also come from the savings of the poor and middle class, assuming they have anything to save.

    They certainly won’t when you leeches are done with them.

  14. Do you think your local coffee shop is clearing $280k in profit per owner? The local gardening or lawn mowing service? Burger joint? Gas station? Dress shop? House painter? Nonetheless, they employ a lot of people.

    Jim, taxes are paid on earnings, not profits. My sister manages sporting goods store with about ten employees. That store earned $1.3 million last year. This is in a fairly typical area of Western PA, hardly an affluent area. Just some food for thought.

    The argument that we shouldn’t tax the rich, so that they will be able to afford luxury toys that are only available to the rich, because they will generously pay the non-rich to build those toys for them, is hardly a persuasive one.

    Jesus Jim, did rich people steal your lunch money when you were a kid or something? Why do you hate them so much?

    A better version of this argument would be: don’t tax the rich, because they will invest in new factories building solar panels and cancer drugs (or whatever), which will hire lots of people and make the world a better place for everyone.

    Okay, whatever. I used jets because I have family in the aviation industry, and it’s near and dear to my heart. Could have been clothing, food, electronics; doesn’t matter. Businessmen own and run those factories, and they run a lot less if all their money winds up in DC.

    But private investment doesn’t have to come from the rich; it can also come from the savings of the poor and middle class, assuming they have anything to save.

    Who won’t have anything to save if they’re un-em-ployed. Why can’t you understand that?

  15. “Maybe raising overall taxes to offer “socialized medicine” would increase small business growth?”

    How about changing the rules so small businesses can form groups to produce a bigger pool and let them shop in an interstate market? Change the law so employers can keep their tax breaks on coverage and allow individual employees to keep their policy if they leave and go to another job? There are many things to do without government run health care to solve the problem. Government is rarely the solution.

  16. Just look at what happened with the luxury tax on yachts: not only did it not raise anywhere near as much money as its proponents argued, it drove many American luxury yacht builders out of business. It probably cost more money than it raised once unemployment and lost income taxes, etc., are all accounted for.

  17. And few need yachts to do business, unlike corporate jets. But the only business Jim knows is his own. But that’s OK, Jim and the rest of our moral betters will decide what kind of airplanes the kulaks will ride anyway, or where they’ll hold their business meetings. Who cares if that Sin City goes under? And of course, they will decide what kind of health care the kulaks get, because they can’t be trusted to make their own decisions.

    We can’t let that pesky individual freedom get in the way of social justice. You have to break eggs to make omelettes, after all. Just ask Uncle Joe Stalin.

  18. taxes are paid on earnings, not profits Since when? Corporate taxes are paid on profits, and personal taxes are paid on income.

    Small businesses (like the consulting company I used to work at) tend to “bury” their profits in the owner’s salary, but still, if the company isn’t making significant profits, the owner isn’t drawing a big salary.

    More to the point, if the total cost of business, including taxes and health care, goes down, then the proposal is good for small business. We’ll have to see the details of a real bill to know that answer.

  19. Jim, you live in an economic fantasyland, in which rich people’s and business executive’s time is of no value, so they don’t need business jets, and that business jets do nothing to make the country more productive.

    I don’t believe any of those things. The argument being made was that if we tax the rich it will hurt the business jet business. Which is only true if business jets have a lower ROI than some other thing that the rich spend money on.

    Why not get rid of airplanes altogether?

    I especially don’t believe that! I’ve finally gotten around to starting flying lessons this summer.

    Jim, taxes are paid on earnings, not profits.

    I’m not sure what you mean by “earnings.” Taxes are paid on profits. I own a small business, and I don’t pay taxes on the revenue that comes in, I pay taxes on the revenue minus my costs, i.e. my profit. [Depreciation makes things a bit more complicated, if most of the business’s expenses are large capital purchases.]

    My sister manages sporting goods store with about ten employees. That store earned $1.3 million last year.

    If that store had a profit of $1.3 million, that’s fabulous; most retail stores don’t have close to that kind of profit per employee. But I suspect that it had gross revenue of $1.3 million. Subtract the cost of goods, salaries, benefits, other expenses, and you’re looking at a lot less than $280k per owner. That is a perfect example of the typical small business, which creates a lot of jobs and won’t be affected in the least by the proposed surtax.

    Jesus Jim, did rich people steal your lunch money when you were a kid or something? Why do you hate them so much?

    Hardly, I’m one of them. I just don’t see why a friend who ekes by on $20k/year should go without health insurance so that I can hold onto more of my earnings.

    Who won’t have anything to save if they’re un-em-ployed. Why can’t you understand that?

    We’re talking about a fixed sum of money. It will either start out in the hands of the rich, or of the poor and middle class. There’s no reason to assume that it will create more jobs, or better jobs, in one place rather than the other.

    We can’t let that pesky individual freedom get in the way of social justice.

    The precious “individual freedom” in this case is a marginal tax rate bump of a few percent, levied on the 2 or 3% of Americans most able to afford it.

    Just ask Uncle Joe Stalin.

    Yes, having the rich pay a few percent more in taxes is exactly like the gulags. Perhaps Stalin deserves his own corollary to Godwin’s law.

  20. We’re talking about a fixed sum of money.

    Okay, Jim, you win. Black is white, up is down, and I love Big Brother.

  21. I just don’t see why a friend who ekes by on $20k/year should go without health insurance so that I can hold onto more of my earnings.

    Then you buy his health insurance. It’s not your place to tell other people what ton do with their money.

  22. If your argument is that small businesses will be disproportionately hit by a surtax, then you start with the number of small business owners and figure what share of them will be hit by a surtax, and compare it with other taxpayers.

    The WSJ hasn’t even tried to answer that question. It’s an important question, and worth asking.

    The small business owners I know aren’t usually poverty stricken, but sometimes they earn less than they owe. And I don’t think most of them net more than $2800,00 for an individual or $350,00 for a couple.

  23. Why are we considering $280,000 as a base level anyway? Taxes are going to have to increase on the lower income people too. Here’s how I see it happening. Taxes go up on the very wealthy. They move their net income out of the US. Tax revenue fails to meet expectations. Government tries to recover that income from the very wealthy, but fails because in the long run, the very wealthy will be a lot smarter than the tax collectors. That money will be out of reach even if the very wealthy have to live in a more tax friendly country.

    So now, government has driven out a key portion of the employers and assets of the US and still fails behind on revenue. If government hasn’t changed hands by now, they’ll have to go after the middle class as the only remaining significant tax revenue source. Or they’ll have to cut spending a lot.

  24. Taxes go up on the very wealthy. They move their net income out of the US. Tax revenue fails to meet expectations.

    Except we’ve been at these levels under the Clinton administration and there was no mass exodus from the US.

  25. A wonderful quote (and I confess that I forget the source) was ‘money can hire lawyers, accountants, and travel agents to avoid taxes..’, and this says it all. The ‘rich’ will quickly fall into two groups, businesses and the well-off, which will get hit hard by tax increases because they will find it harder to hide their money, and thus be less likely to invest it profitably, and the super-rich, who will simply shelter it or move it elsewhere, and laugh at the rubes…

    The first group is the group that generates most new jobs, the second, comparatively few. Brilliant system the liberals have come up with…they manage to benefit those that don’t need the help, and punish those that can help us. Of course the super-rich tend to be big Democratic supporters (I wonder why…)

    As for taxes and earnings, the strategy of the left seems to be to argue that only businesses making significant profits will be hurt by these increases, so everything is OK. Remember, it is those profits that are typically used to generate new jobs (small business owners don’t by bizjets, they hire more people to expand the business), and these proposed changes will kneecap those very individuals and businesses we most need…

    Finally, there is more to this than just taxes, it is a regulatory environment that is increasingly unstable, and where predictable, actively hostile. Nothing dampens business activity (particularly hiring) like uncertainty…

    Now, lets Jim and Charles display their superior knowlege as captains of industry (evidence?) and show us how these simple principles will be overcome by the brilliance of BHO (PBUH)

  26. Jim said:

    _We’re talking about a fixed sum of money. It will either start out in the hands of the rich, or of the poor and middle class. There’s no reason to assume that it will create more jobs, or better jobs, in one place rather than the other._

    I don’t like to jump on people in comments, but this is the root of the liberal fallacy. It’s actually not true. Economically speaking, interest on loans represents new money added to the monetary system to reflect the growth of material value in the economy. The government doesn’t keep a fixed-sized money supply; it has to grow the money supply at the rate that the economy adds material value (and that’s why it does so by setting the interest rates); failure to get that exactly right is the source of inflation and deflation. Economic growth literally increases the amount of money in the system at (hopefully) constant prices and it doesn’t all go to the rich; a lot goes to increasing standards of living to the poor. Large profits in the hands of the rich _are_ an economic inefficiency, but to act as if there’s a constant sized money supply that must be redistributed is the root of the fallacy that leads to lowering the standard of living for everyone.

  27. Scott – I really don’t know what your experiences in small business are. In the small business I worked at from 1994 to 2001, health care was a significant and growing cost. In the article I linked to above, the cost of providing health care to new hires meant new people weren’t hired.

    To decide if the new health care proposal will help or hurt small business, you need to look at the total cash outflows. That includes profits, per-employee health care costs, and a host of other costs.

  28. I don’t like to jump on people in comments, but this is the root of the liberal fallacy.

    I think you’re reading too much into my comment. What I meant was:

    The government is thinking about a new program that will cost $100B/year. The program can be paid for in a number of different ways, such as:

    1) Borrow the money (the option chosen for the Iraq war)
    2) Raise taxes such that the money mostly comes from the rich (the House proposal for funding health care reform)
    3) Raise taxes such that the money mostly comes from the non-rich (the option chosen for the 1986 Social Security reform)

    Choosing 1) just postpones the decision; taxes of some sort will later pay for the spending (with interest).

    So you’re left with deciding whether to take $100B from rich people or from non-rich people. It’s a fixed sum, $100B, either way.

    This thread started with the premise that 3) is better than 2), because the rich will create jobs in their small businesses. But the non-rich will start out $100B in the hole; I think they’d rather have that $100B than hope that it will trickle down through the rich and grow in the process.

  29. Were did you run your business, Gerrib? Chicago?

    Perhaps if Chicago encouraged competition rather than electing politicians opposed to free markets, healthcare costs would be lower. Houston healthcare isn’t neaerly as expensive as Chicago, and Houston just passed Chicago as the 3rd largest US city.

  30. Yeah, they’re worse in New York City. There, you can already see how freedoms are being trampled in the name of lowering healthcare costs. Trans fat ban? It will probably be the first city to cut health treatments for people deemed obese by the BMI.

    Here’s you another WSJ article discussing how British healthcare system is already deciding what medications will not longer be provided in order to cut the cost of healthcare. Screw your collectivist mentality that you should get a profit on the back of denying life extending medication.

  31. Chris,

    I have worked in both small and large businesses in several regions of the country, and consulted with two in Europe for good measure. While there is no doubt whatsoever that the costs of providing healthcare (like any other costs) were relevant in business decision-making, especially those decisions regarding hiring, those costs were entirely secondary to issues of taxes, regulation, and mandated benefits. This was particularly an issue in Europe, interestingly enough, despite the fact that healthcare was entirely subsidized there.

    The catch is that by taxing small businesses (and that is what these ‘taxes on the rich’ are) in order to subsidize healthcare for the broader population, the costs incurred for businesses are a net loss, i.e. the businesses will pay out more in taxes than they will save in lowered costs. This is a particularly severe problem for companies that employ semi-skilled or unskilled labor, as the marginal revenue from each new hire will be lower, yet the businesses in question will still be hit with various taxes and regulatory mandates associated with healthcare that might not otherwise impact them.

    At the end of the day, only willful blindness can suggest that the healthcare proposals being bruited about are anything other than job killers. They might be desirable for other reasons (and while I wouldn’t agree with that point, it is certainly one that can be defended with some sort of intellectual integrity), the notion that this will be a job saver or a cost cutter is simply nonsense being promulgated by people (like yourself) who certainly should know better.

  32. Scott – my understanding of European labor law is that it is very expensive to fire somebody, which reduces hiring. It has nothing to do with health care.

    Leland – the problem with using British health care as an example is that nobody is proposing a British system. In Britain, doctors work for the government in government-owned hospitals.

    Under the proposed US system, much like the French system (which is what we’re building) doctors work for themselves. If your government health plan doesn’t pay for a drug, you can buy it privately, much like what you do now if your private health plan won’t pay for it.

  33. The government is thinking about a new program that will cost $100B/year. The program can be paid for in a number of different ways, such as:

    1) Borrow the money (the option chosen for the Iraq war)
    2) Raise taxes such that the money mostly comes from the rich (the House proposal for funding health care reform)
    3) Raise taxes such that the money mostly comes from the non-rich (the option chosen for the 1986 Social Security reform)

    Jim, this is an example of your blindness in action. There are two other choices:

    4) Cut 100 billion dollars from other programs.
    5) Don’t implement the program in the first place.

    Why aren’t you considering choices 4) or 5)?

    Chris, my beef with the proposed changes to the health care plan is why are you assuming costs to businesses will go down? For example, the Stimulus bill increased the costs of employing people by forcing employers to pay for longer periods for their health care benefits after an employee leaves employment. Supposedly, the employer will recover most of that outlay within a couple of years, but it’s still a cost that wasn’t there before.

  34. why are you assuming costs to businesses will go down?

    ‘Cause that’s kind of the point? I’m not sure what relavance the stimulus bill is to this debate.

    Regarding doing nothing – yeah, I’ve considered it. But I see a problem with health care in America, and “doing nothing” won’t fix the problem. In fact, it would be the definition of insanity – doing the same thing while expecting different results.

  35. I see a problem with health care in America, and “doing nothing” won’t fix the problem.

    So the only choices are “doing nothing” or doing something that might be disastrous, because we won’t even be allowed to read the bill before it’s voted on?

    And you wonder why I have a problem with the current Congress? And people who (like you) defend it?

    I know you have a problem with the concept, but sometimes “doing nothing” is the preferable solution, given the available (apparently binary) options.

  36. > Chris Gerrib Says:

    > The bill is available online here. You can read it if you want.

    Sorry Chris, the congress is still writing their version of the bill, and the Senate version has been largely rejected by the house- so likely the house version won’t go over with the Senate.

    >> why are you assuming costs to businesses will go down?

    > ‘Cause that’s kind of the point?

    In history has government EVER managed to run something for a lower cost then the commercial alternatives? They can subsidize it to undercut commercials, but do it more econmically?

    Past that, lower cost is NOT the reason folks in Washington are pushing it. They talk about “fairnes”, being more inclusive, etc — NOT lower cost.

  37. Chris,

    It is almost impossible to fire anyone in most of the EU, and that absolutely has a very, very strongly negative impact upon hiring there, but to some extent that makes my point. The regulatory environment there makes it extremely difficult to grow their economy in general, but there are important distinctions that should be noted. Small businesses are far, far less prevalent in Europe than here in the US, in large part due to the very high taxes on the proprietors of such businesses, and the restrictive regulatory environment. In France (with which I am intimately familiar), the regulatory burden is excessive in the extreme, but the very high taxes are the biggest piece of the problem. These taxes are strongly associated with the cost of the social welfare system, a big part of which is….wait for it….socialized medicine.

    The point here is that if a European-style healthcare system relieves the burden on small businesses (something that has never been adequately demonstrated in practice), why do we not see flourishing small businesses in the EU?

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