Discover more from Hennessy's View
Say you work for a good-size, privately held company called X-Dyne Inc. X-Dyne has revenues of $2 billion a year and employs 4,000 people. Last year, X-Dyne’s EBIT (earnings before interest and taxes) was $20,000. After taxes, the company made $11.1 million in profits.
The company used those profits to fund this year’s growth investments: hiring new employees, advertising and sales, research and development. Because the company’s strategy is to fund all growth with internal profits, it keeps a healthy bank account to continue operations should a large client leave the firm or should the economy turn down.
Then Barack Obama became president, and Democrats won powerful majorities in both Houses of Congress. Obama increased the effective corporate tax rate from 40.9 percent (according to The Economist) to 55 percent. With the economy weak, Obama had to go after corporate profits because individual incomes of the 5 percent were insufficient to fund the trillions of dollars in new programs he promised.
So X-Dyne has a double-barrel problem: the economy reduced it’s 2009 profit estimates from $11.1 million (zero growth) to $8 million; Obama took 55 percent of that 8 million, leaving your employer with only $3.6 million. That’s What would a responsible business do?
First, X-Dyne would reduce payrolls enough to recover at least half of the $7.5 million lost to the slowing economy and Obama’s tax increase. Assuming that the total cost of employment for its employees is $100,000 a year (about $70,000 salary), it would have to lay off about 325 people.
If you’re one of those 325, will you be happy with the tax cut Obama’s promising 95 percent of Americans?
Suppose you’re not one of the 325. Suppose you keep your job. X-Dyne, in order to prevent further lay-offs in future years, decides to recover some the remaining $3.25 million deficit by a combination of a) 5 percent salary cut, b) 20 percent increase employee’s contribution to healthcare premiums, and c) eliminate of 401k contribution matching.
Will the $800 annual tax cut from Obama offset the $3,500 pay cut, the $800 increase in health insurance, and the 50 percent cut in your retirement savings?
No. In exchange for an $800 tax cut, you lost at least $4,300 dollars in income. That’s IF you were one of the lucky ones to keep your job.
The only economic reason to vote for Obama is if you are one of the 40 percent of Americans who contribute nothing in the form of taxes. In other words, only society’s leeches and bums will profit from an Obama administration.
Don’t be a leech.