Saturday, December 11, 2010

Chris Matthews is an idiot

You guys owe me big for continuing to watch this guy so that you don’t have to. It’s hard, but I get a glow of satisfaction from knowing that I am contributing to the nation’s collective IQ, since I can feel mine dropping every minute while I’m watching Hardball.

Yesterday he was talking about how pleased he is with the President’s tax compromise, and was quoting none other than Charles Krauthammer. Really, not only citing him, but breathlessly quoting him and all but saying that he had a thrill down his leg. Or is it up his leg; I forget which way the thrill travels in his leg.

In his Let Me Finish segment he summed up and repeated his orgasmic opinion of the tax deal, citing two points which make it such a winner for the economy; that it will “lower the cost of hiring” with its two percent payroll tax cut, and that it will allow business to “write of the costs of investment, just write it off in one year.” Clearly, Chris has never run a business, done any hiring, or processed any payrolls.

On the first point he is just flat wrong. I have no idea where he got that little gem of idiocy. He implies it came from the Krauthammer editorial, but Krauthammer never actually mentioned the payroll tax reduction at all, and certainly did not suggest that it “lowered the cost of hiring.” It does not.

Employers presently deduct 6.2% of an employee’s gross pay, which they send to the government within 48 hours of making the deduction. Under the tax compromise, they will deduct 4.2% instead, leaving the employee with a larger paycheck and the employer’s bank account with the exact same amount as before. Put another way, instead of sending 93.8% to the employee and other deductions and 6.2% to Social Security, the employer will send 95.8% to the employee and other deductions and 4.2% to Social Security. Either way, the employer will pay out 100%.

As to the investment write off, well, we’ve done this before and it’s never shown much of a result. In order to benefit from it the business has to buy something, and the benefit is not that you deduct the purchase price from your tax. You get to reduce your income by the amount of that purchase and you save the amount of tax that would be incurred by that amount of income. That’s seems a lot more thrilling to politicians than it does to businessmen. Typically, buying a $10,000 computer might save you $2000 in taxes and that’s not really all that exciting; you’re out $8000.

If you really needed that computer, then fine; you effectively got a $10,000 computer for only $8000. But no sane businessman would spend $10,000 for the purpose of cutting his taxes by $2000, which is what politicians, and Chris Matthews, are thinking millions of businesses will do.

4 comments:

momlee said...

Ummmmm. It is my understanding (and I was once a payroll clerk) that FICA includes 2 parts: the employee contribution, and the employer contribution. They used to be =, don't know if that is still true. Effectively, the employer and the employee each pay half of the FICA that goes to the government. So yes, the employer saves a bit. Not that I think it is enough to change hiring practices.

Jayhawk said...

Employer presently pays 6.2% matching employee's 6.2% deduction. The employee deduction is reduced to 4.2% under Obama's plan, while the employer's share remains at a 6.2% payment.

bruce said...

and why is some political segment not screaming about the hit that SS will take on this and the imminent demise of the system, etc etc ??

Or maybe they have and I missed it. Amidst all the other snorting..

Jayhawk said...

The money lost to SS will repaid by funds from federal general revenue.

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