October 23, 2008 4:42PM

How Does 37.7 Cents on the Dollar Sound, Californians?

By Brian Sullivan

The Milken Institute in California had a debate on the economy and economic politics today between businessman Leo Hindery and Stanford professor Michael Boskin. The video is on the Milken website.

I know Leo well and have interviewed him many times. He’s a very smart guy and successful businessman.

I am not as familiar with Michael Boskin, so I was researching him and came across his personal website. On it, he has posted his analysis of the possible tax implications of the Obama-Biden plan. Boskin is an advisor to John McCain, so keep that in mind when reading it, but since he’s a professor at one of the most prestigious schools in the country, one would have to believe he knows his numbers. Those numbers are scary, and not much better in other states with high state income tax rates.

From Boskin’s piece: (link to the full piece attached)

Obama would raise the top marginal rates on earnings, dividends and capital gains passed in 2001 and 2003 and phase out itemized deductions for high income taxpayers. He would uncap Social Security taxes, which currently are levied on the first $102K of earnings. The result is a remarkable reduction in work incentives for our most economically productive citizens. The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phaseout and Obama’s new Social Security tax increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.3%.

People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.7 cents, a reduction of one-third in the after-tax wage! Despite the rhetoric, that’s not just on “rich” individuals. It’s also on a lot of small businesses and two-earner middle aged middle class couples in their peak earnings years in high cost-of-living areas.

Think about that - 37.7 cents of your earned dollar! If those numbers are accurate it would go to my previous posting about tax rates and work effort. That’s quite a cut.

Do remember this analysis is based on a state with high income taxes. That 37.7 cents would not be quite as bad in states with lower (or no) taxes, but no doubt that 55.4 cents would still come down dramatically.

We will reach out to the Obama camp to get their comment on these staggering figures.

33 Responses to “How Does 37.7 Cents on the Dollar Sound, Californians?”

Comment by Bruce

October 23rd, 2008 at 6:19 pm

I can’t wait to hear those self centered Hollywood types complain about how much there income is being affected.

Serves them Right, or should I say Far Left?
Comment by Common Sense

October 23rd, 2008 at 6:23 pm

Sounds like socialism–but don’t say it, or you are a racist.
Comment by Ralph

October 23rd, 2008 at 6:37 pm

All I have to say is three words “BOSTON TEA PARTY”…
Comment by Cat

October 23rd, 2008 at 7:34 pm

Brian, I’m not a Californian, but we are southbound on the road to hell if the suckers in America vote Obama into office. If the chumps out there decide the government needs to take all of their hard earned money and dole it back out to them in drips and drabs, they have truly turned into sheeple. Anybody out there still left with any intelligence will figure out that hiking taxes on the “rich” at $200K for singles and $250K for couples will quickly turn into taxes on the “fringe rich” and the “not so rich” making a heck of a lot less when the incoming revenues don’t cut it (can you spell B-A-I-L-O-U-T). And who the heck will invest a dime only to have more of their gains taxed away at 20-28%? Yes people, we will have gains again… get a grip.

WAKE UP PEOPLE!!!!! Grow a spine, get out there and take care of your own lives. Stop listening to rhetoric from folks who do not have your best interest in mind that claim they can “fix” your lives. They have never had the ability to fix your lives and never will.

Quote of the century:
‘My friends, we live in the greatest nation in the history of the world.
I hope you’ll join with me as we try to change it.’
– Barrack Obama

Really?????????? You at least got the first part right. Somehow I don’t think I’ll be joining you on your quest to run us into the ground… but thanks for the offer.
Comment by monkeyfurball

October 24th, 2008 at 12:24 am

Wow. 63% tax rate. I currently pay about 46% taxes here in MN since I am in the top tax bracket. Don’t forget that tax increases are a big drag on the economy and will contribute to even more outsourcing to other countries and even larger layoffs in the US since employers will be forced to match the social security tax increase for employees. The extra tax takes cash away from small businesses and this will stunt growth. I own two businesses and I would lay off people and either outsource to another country or replace people with machines if possible to reduce expenses. Of course, I will not be raising anyone’s wages for years to come as long as these kinds of tax rates continue.
Comment by Blake

October 24th, 2008 at 7:30 am

We need to all take a step back and become objective. We have somehow already “agreed” that 35% in taxes is something we can live with (based on the posts in various blogs). I, however, refuse to accept this rape of my paycheck!

Have we lost our collective minds? This government of our’s doesn’t deserve a penny over 10% and that is pushing it! We need to strip government of every unnecessary program and initiative. We need the basics as defined in the U.S. Constitution.

The “common good” has grown to include everything under the sun and I am sick and tired. Now we are actually discussing tax levels (just income mind you) of 40%+ and we’re not even blinking an eye!

I submit to all of you that if we reach a point (and we are very close) where our government “takes home” more than us that many, many people are going to throw in the towel.

We will indeed have a depression because “the people” are going to see to it that it happens. We need to go to the polls in November and mete out some severe justice on Congress!

That is just the first step. Americans need to get re-engaged with their elected officials and hold their feet to the fire. This is getting out of control and it is a tough task to stop a run-away train.
Comment by Wayne S

October 24th, 2008 at 7:46 am

And you all wonder why the pre-market is down limit this morning? Incentives are expected to be put in place (If Obama wins) that:
- Penalize businesses of all size
- Threaten to (or actually) nationalize some (all) businesses
- Threaten our401k’s
- Punish hard work
- Punish innovation
- Punish risk taking
- Health Care based on Political Correctness not on ability to pay and need
- etc.

Why invest. Why not spend all your money now. It will be taken away by the government.

It appears my old neighborhood buddies were right. Why work hard, years of hard work will be stolen at gun point by the government.
Comment by Keith K

October 24th, 2008 at 8:44 am

“From each according to his ability, to each according to his need.” Isn’t this what Obama is proposing? From the “rich” according to their ability to pay (as determined by Obama and the DemocRATS) to the “poor” according to their needs (again determined by Obama). Pure Marxism. The liberals are so snobbish, they think that socialism has not worked anywhere else because they didn’t have the right people running it. They just know that if they were in charge, everything would be okay. As if.
Comment by David in Sarasota

October 24th, 2008 at 9:22 am

It is hard for me to believe that 45%+ of Americans, Americans mind you, would even consider voting for NObama. What has happened to the democratic party that they have elected a full blown socialist as their nominee? Have they put something in the water that is turning us into mindless zombees that think this is some how REASONABLE?

My Grandfather was a retired U.S. Marshall, born in 1890 and died in 1985. I remember taking him and my Grandmother to the gocery store in the 70’s. Every trip he would rant about FDR how he ruined the country. You see my Grandfather had a prospective that most Americans didn’t. When DPA was started my Grandfather was assigned the job of escorting the DPA men up some of the remote hollows in WV. My Grandfather would point out the families that were at that time 3rd generation wealthfare and talk about how those families were ruined by it.

Every single time, as we crossed the creek to his farm he would look me in the eye and tell me that it would get worse. In his eyes the hard working, hard fighting American was becoming extinct.

If NObama is elected we will see an economy far worse than the great depression and worse yet, WE MAY NO LONGER BE FREE MEN.
Comment by William S.

October 24th, 2008 at 9:40 am

‘My friends, we live in the greatest nation in the history of the world.
I hope you’ll join with me as we try to change it.’
– Barrack Obama

He never said it, although I wish he had. Just trying to keep the facts straight.

California’s impending bankruptcy is threatening the model of our Republic. No bailout for CA or any other State. I fear that the only solution is to let California die a financial death and rebuild it from scratch.

Just the thoughts of another bitter American, clinging to my guns and religion for as long as Barry lets me keep them. VOTE MCCAIN NOV 4th!
Comment by Grant

October 24th, 2008 at 10:00 am

Here’s an idea. Lets seize all government assets, all citizen assets, build walls with gun turrets and check points to our north and south and all state borders. Establish a secret police, a propaganda czar, re-education facilities and work camps for those who don’t wish to “spread the wealth around.” Then we cam spend the next eighty years claiming Communism is superior to Capitalism and that European greed will consume itself and the workers of the world will unite.

Communism has never come to power in a country that was not disrupted by war or corruption, or both.
John F. Kennedy (1917-1963) Thirty-fifth President of the USA

Socialism is like a dream. Sooner or later you wake up to reality.
Winston Churchill (1874-1965) British politician.
Comment by Ken

October 24th, 2008 at 10:29 am

Raising taxes is a government “Bailout”

No different than wall street “Bailout”

Or bank “Bailout”

There is no incentive to stop or cut spending.

Big companies blowing bailout money on spas—Our government giving money to accorn

The government still has a blank check with noreform. If they do not want to print more money they will just take it out of our checks
Comment by Al

October 24th, 2008 at 10:56 am

Look at the bright side, this is only one of his stupid policies. Let’s not even touch on foreign affairs, where the real debacle could occur.
Comment by fred

October 24th, 2008 at 11:06 am

All I can say is that -be carefull what you wish for, you just might get it! All the Obama -”the messiah” supporters will turn on him in the first year of office. The real question is, can we as conservative fighters for a free democratic and capitalist American, help prevent long term damage to the system from the liberal policies, so that we Obama is run out of town on the third rail, and conservatives are re-elected for the next 20 years, we can undo the damage?
Comment by Rod Tataryn

October 24th, 2008 at 11:06 am

Why invest? I’m a successful small business owner with six employees. I’ve planned all year to invest an additional $200K in equipment in the 4th quarter of this year to take advantage of Section 179, as well as add one employee. The goal: to increase potential revenue. Although lenders are more than willing - I’ve decided against the investment. Not because of the current economy or my confidence in my customers willingness to purchase - but because of the inevitable recession if Obama is elected. I’m convinced that the fear on Wall Street and on Main Street has much less to do with the credit crisis than with the fear of an Obama presidency. Once taxes are raised, incentives to work and risk diminish, and a depressed economy is the inevitable result.

When will voters learn? - Federal revenue is proportional to GDP, the key factor in increasing revenue is to increase GDP. Raising taxes removes incentive, discourages risk and decreases GDP. It’s a simple concept as old as time - and has been proven repeatedly throughout history.
Comment by Bob

October 24th, 2008 at 11:28 am

I live in Califorina and have seen how high taxes have destroyed this state. When they can’t tax they borrow. Every election another bond for something and they say it won’t raise your taxes. And there’s always one to make the schools better but they never get better. A few cities have filed for bankrucy. Business move out of state.

When a business needs to reduce it’s cost it only has a few options and taxes are not one of them. So what do they do? layoff employees and move to where it’s cheaper to do business. That’s what has happened in California. But nationaly that will be a good thing because we will nolonger have an immigration problem with all the jobs going over seas

California has always been a leader and now they are showing the rest of the country how to screw things up. Oh but the federal goverment has one thing California doesn’t, they can print their own MONEY!
Comment by Shawn

October 24th, 2008 at 11:39 am

Brian,
I bet they did not include a tax increase that I heard we might face to bailout CALPERS. That’s good news for state workers. For others that stinks. We are both in our 50’s and seriously considering moving to a state where we can pay cash for a house and work for min wage. That sounds so bad, what are the alternatives?
Comment by J Houston, tX

October 24th, 2008 at 11:40 am

Can you believe this? Why do you think the markets are doing so poorly!? Can you imagine how the markets will rebound if the fear of Obama and the Democrats is alleviated? Why does the Democratic party keep moving further left while Europe is busy realizing how it doesn’t work. I guess that’s just how those who don’t read history are doomed to live. I’d prefer not to be included.
Comment by dan mac

October 24th, 2008 at 11:42 am

Hard to imagine a plan worse than Jimmy Carters!!!Can’t wait to see the results this nov.This could be the first time in our history our presidents office was bought.What a slick con man we are seeing in action!MCCAIN/PALIN 08
Comment by Umpire

October 24th, 2008 at 11:55 am

As a business, I pay out more in taxes than I get to keep. I do get to keep 100% of the headaches at least until they find a way to tax those.
Comment by Jim Hill

October 24th, 2008 at 12:11 pm

I have been a working stiff all my life, i made enough money to feed and house my 7 children and give them a basic education. I did this as an over the road coast to coast truck driver for 32 yrs.The 1st 15 years it was a stuggle because the harder i worked the more money i made the more the feds and the states took out.Mostly under Jimmy Carters tax idea’s. then ronald reagan took over and cut everyones taxes and i took home a little more by working longer hours,but at least i was’nt penalized for working hardER AND longer.Sometimes i feel the rich get richer, but thats ok,because what i have seen , is when the rich have more money they either spend it on things that i hauled as a trucker, or they invested it into other business ventures, which someone has to run or work for.As for the comments about Obama going socialist, one thing i clearly remember Nikita Kruschev saying , in affect, we will defeat you from within your own countrys’ system. It looks like his words are starting to come to pass.If you are wondering how a working stiff becomes a republican or realy a conservitive.Its like this. my father and mother were staunch dems. right or wrong,untill the civil rights movement of the early sixties when it was obvious that the real racist party was the democrat party,they would say one thing to a white crowd then another to a black or librel bunch.Then came my 1st chance to vote in 1968,we always either listened to or watched the debates and political conventions on tv.when the dems had theirs in chicago and they had all their problems with the demonstrators and mayor Daily used police dogs and clubs on those young folks on the street….those were’nt young republicans they were beating the hell out of ,those were members of their own party democrats.I made my mind then and there if thats how they treat their own party memebers like that , there was no way i would vote democrat.Any way i have voted pretty much straight republican since.Well i know i’m not the brightest match in the book but i can’t see how B.O. , thats what i call Borak Obama, can helps us by taxing us more.BTW, working stiffs those taxs he’s going to strap on the rich will be paid by those whom consume….all of us… thats my 2 cents worth……JRH.
Comment by Matt

October 24th, 2008 at 12:40 pm

http://www.ronpaul2008.com

Nuff said
Comment by Timw

October 24th, 2008 at 12:58 pm

The polls grow for Obama, the market tanks. Isnt it time for the leading economists of this nation to grow a spine, get on big media and jointly announce the facts to the world? I am already shot, but i pray for my children, hard workers from the age of 14. God help them.
by
Bitter gun toting Pennsylvanian
Comment by a nobody in CA

October 24th, 2008 at 1:00 pm

Brian–I am a native Californian, and I have one word for you: “Secession!”

We are a very dysfunctional state with a lot of issues…but you gotta wonder if we might do better on our own? We are one of the largest economies in the world.
Comment by Adam Smith

October 24th, 2008 at 1:14 pm

“Can you imagine how the markets will rebound if the fear of Obama and the Democrats is alleviated?” wrote J. Houston
Of course. And why aren’t the talking heads & financial gurus on the boob-tube warning us that a major aggravating factor in the current Wall Street dive is the fear of electing Barack H. Obama, candidate of the Social Democrats?
European history repeats itself on this side of the pond!
Comment by Super Sucker

October 24th, 2008 at 1:31 pm

I can only speak for what I will do if this comes to pass. I have my own successful service oriented business. I enjoy a good income only because I work at it more than 80 hours per week. The only reason I would continue to work like that under the Obama plan is if I put no monetary value on my personal time. If that is the assumption, it is faulty. When the government gets more of the fruit fom my labor than I do, the labor will slow down to a government employee’s level. Employees will be let go, and, although I will have less disposable income, I will have personal time that I have not had for years. Actually, I will be able to live with that. My only apprehension is the harm it will do to my customers, since more than half will be informed that I will no longer be working for them. However, assuming they are a resresentative sample of the general population, they will be getting exactly what they are voting for.
Comment by Robert

October 24th, 2008 at 2:32 pm

On the brightside if he is elected I can now remove helthcare from my cost,go ut of business and drop down to be one of the 40% that will get a check now. Since good ol brother obhama is going to own the houses. my neighbors who bought a $400,000 home being unemployed when they bought it never made any payments and just got a write down to $200,000 from Bank of America at 5.2% 30 year fixed. They never paid HOA and my bank says since I am not behind I don’t need help.

Well guess what I am tired of working 15 hours a day 7 days a week and paying salary and missing my kids. I decided as soon as he is elected dumping health care and letting gov pick it up they have a nice system. Then after all my low life neighbors get the write downs letting all mine go so they can be upside down again and let Bank of America choke twice. Then drop myself down to be one of the 40% that get check every year and buy steaks with the other food stamp people (tired of chicken) and letting my employees go as soon as they extend those unemployment checks for 48 months.
By the way I called my congressman asked him if congress was going to take pay cut and he said “there is no vote for it” A**HOLE knows they have to vote no to not get it !!!
Done stck a fork in the pig lipstick and all
Comment by Working too hard in California

October 24th, 2008 at 2:47 pm

For us Californians trying to fight back…

http://www.hjta.org/

-A
Comment by LIBERTY!

October 24th, 2008 at 4:06 pm

When has our gov’t done anything right?
Comment by Ohio MBA

October 24th, 2008 at 4:24 pm

To nobody in CA. Succession wont work for you all. your broke remember. Get some of the Obama funds prior to leaving if you wish to have any success. However unless you change your ways those funds wont last long. The fruits and nuts liberals will have it all spent on Acorns and giveaway programs in short order. Class warfare and race wars never seemed a probability in America, Now I am begining to wonder. I lived in Quantico VA during the race riots of the 60’s as a kid and was terrified they would come to my house. I moved to Irvine Ca in the early 90’s and was there for the race riots. I move to Cin Oh in 97 and damn if we didnt have race riots here. NOW
Comment by Ohio MBA

October 24th, 2008 at 4:25 pm

To nobody in CA. Succession wont work for you all. your broke remember. Get some of the Obama funds prior to leaving if you wish to have any success. However unless you change your ways those funds wont last long. The fruits and nuts liberals will have it all spent on Acorns and giveaway programs in short order. Class warfare and race wars never seemed a probability in America, Now I am begining to wonder. I lived in Quantico VA during the race riots of the 60’s as a kid and was terrified they would come to my house. I moved to Irvine Ca in the early 90’s and was there for the race riots. I move to Cin Oh in 97 and damn if we didnt have race riots here. NOW I AM CONCERNED AGAIN.
Comment by Charlie Barker

October 24th, 2008 at 4:30 pm

I see that a lot of folk out there understand what Obama is, a Marxist.
He is leading the non-thinking entities on feet to a Marxist government.
I hope Americans wake up and vote against Obama. I will not hold my breath!
Comment by Joe the Lib

October 24th, 2008 at 5:15 pm

Good day all,
First, thanks to Brian for finding and sharing this information. It definitely helps to frame ones thoughts on take home and taxes. I don’t think most people understand the complexity of our entire tax structure(payroll, income, sales, etc.) until you put it into dollars and cents.

On to the rant:

After reading the whole article and some of the comments, I’m amazed we even have a country anymore! At some point in our past, when faced with federal income tax rates of 90%, the strong, enterprising people of this country did not stop working, or growing businesses, or investing. They continued on the path that made this country great. They didn’t give up, give in or leave. Based on some of the comments I’m seeing here, those people were fools. Let’s rethink that a bit.

I am going to go out on a limb and guess that 98% of us commenting did not inherit a significant portion of our wealth. Of those, I’m going to say at least 75% had jobs before college, that paid minimum wage or near, and we moved up through the economic ladder, doing a little better each year and at each job. Now, hopefully, we represent the economic middle class or better.

If that’s so, haven’t we made the decision to move our income up into a higher tax bracket at least 3 times? If you’re in that magic unlimited highest bracket, you made the choice 5 times! But now, that the number is moving up again, oh we’re done for. DONE. The rich will leave the greatest country in the history of mankind over this. And go to Canada. Or France. They don’t value this country, and it’s rights, priviledges and freedoms. They can get better elsewhere. I hear there are better schools in China, better healthcare almost everywhere else and much lower income taxes in Korea, Australia, Japan and Mexico.

Based on history, that’s not the case. The great among us will continue to do great things. Workers will work, thinkers will think, leaders will lead and we will remain strong. I think, overall, it’s better to be an American than a citizen of any other country in the world. For enough reason that a change in the tax structure can’t make me leave. If I don’t like it, I talk to my neighbors and I vote to change it.

Be well and stay safe all,
Joe