Monday, August 09, 2010

Why I'm Not Hiring

By Michael P. Fleisher, Originally Published in today's Wall Street Journal

With unemployment just under 10% and companies sitting on their cash, you would think that sooner or later job growth would take off. I think it's going to be later—much later. Here's why.

Meet Sally (not her real name; details changed to preserve privacy). Sally is a terrific employee, and she happens to be the median person in terms of base pay among the 83 people at my little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings. She's been with us for over 15 years. She's a high school graduate with some specialized training. She makes $59,000 a year—on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay.

Before that money hits her bank, it is reduced by the $2,376 she pays as her share of the medical and dental insurance that my company provides. And then the government takes its due. She pays $126 for state unemployment insurance, $149 for disability insurance and $856 for Medicare. That's the small stuff. New Jersey takes $1,893 in income taxes. The federal government gets $3,661 for Social Security and another $6,250 for income tax withholding. The roughly $13,000 taken from her by various government entities means that some 22% of her gross pay goes to Washington or Trenton. She's lucky she doesn't live in New York City, where the toll would be even higher.

Some Firms Struggle to Hire Despite High Unemployment Faces—and Fates—of the Jobless Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally.

Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers' comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally's Medicare and $3,661 for her Social Security.

When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally's job each year.

Because my company has been conscripted by the government and forced to serve as a tax collector, we have lost control of a big chunk of our cost structure. Tax increases, whether cloaked as changes in unemployment or disability insurance, Medicare increases or in any other form can dramatically alter our financial situation. With government spending and deficits growing as fast as they have been, you know that more tax increases are coming—for my company, and even for Sally too.

Companies have also been pressed into serving as providers of health insurance. In a saner world, health insurance would be something that individuals buy for themselves and their families, just as they do with auto insurance. Now, adding to the insanity, there is ObamaCare.

Every year, we negotiate a renewal to our health coverage. This year, our provider demanded a 28% increase in premiums—for a lesser plan. This is in part a tax increase that the federal government has co-opted insurance providers to collect. We had never faced an increase anywhere near this large; in each of the last two years, the increase was under 10%.

To offset tax increases and steepening rises in health-insurance premiums, my company needs sustainably higher profits and sales—something unlikely in this "summer of recovery." We can't pass the additional costs onto our customers, because the market is too tight and we'd lose sales. Only governments can raise prices repeatedly and pretend there will be no consequences.

And even if the economic outlook were more encouraging, increasing revenues is always uncertain and expensive. As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company's vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment.

A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government's message is unmistakable: Creating a new job carries a punishing price.

Mr. Fleischer is president of Bogen Communications Inc. in Ramsey, N.J.


frithguild said...

Let's not forget that the "Bush Tax Cuts" will soon "Expire" - amazing doublespeak clearly recognized by all that file a Schedule C.

Sadly, Mr. Fleischer may be setting himself for some Joe the Plumber treatment, if you take the number of paid bashers posting comments on the WSJ site as an indicator.

Joe Schilp said...

Trememndous column. And while "Sally" may take home $44k of her $57k salary, she also loses roughly $6k to property taxes (if she lives in the same county where she works), leaving her with just $38k.

But then, she pays sales taxes when she buys things and eats at restaurants. And she pays tax on gasoline every time she fills her tank. And pays for permits for her dog. And cannot do any home improvement without municipal permits.

The Taxpayers Union has estimated that in NJ, 53% of all of your income goes to the cost of gov't.

It costs too much to live here. It costs too much to do business here.

Help us, Chris Christie.

Chris said...

Joe is right, once you get your net pay in the bank, the taxing continues. If you spend that money instead of saving it (say, 80% spending), you pay the 7% sales tax on most things you buy. If you drive to work, you have the gasoline taxes that dwarf the actual oil companies profits on each gallon of gas. If you own your house, besides local taxes, school taxes and county taxes, you pay sizeable taxes on your utilities. Your insurance is also heavily taxed.

As taxes rise progressively with your income, the main incentive in earning more seems to be the ability to hire an accountant to help you write-off as much as possible and keep as much of your earned income as you legally can.

ambrosiajr said...

And this is news why? Been like this for years and years. You're realizing this all of a sudden? Were you sleeping through all of those years? Hey, its been like this through republicans and through democrats. What's different?

db said...

make Sally a contractor pay her the 77K let her worry about SS, Medicare,insurance ,all taxes UI ....The truth shall set you free !

Anonymous said...

Ambro said "its been like this through republicans and through democrats. What's different?"

answer- The Dems want to make it worse.