Peppers & Rogers Group combines a global perspective, deep expertise in customer strategy and decades of experience serving top companies. Read our latest insights and thought leadership on the customer economy.


Assisted Suicide for Our Economy

July 18, 2009

Assisted Suicide for Our Economy

If you think the economy is bad now, just wait until the new health-care legislation is passed. Income tax rates on high earning people (i.e., the most productive members of the economy, the ones who create the most jobs and generate the most innovation) will be increased to levels higher than all but a few of the European countries. The marginal rate on Federal income tax will be increased from 35% to more than 47%! Counting state and local income taxes, and the 2.9% Medicare tax, on average the marginal tax rate on the highest U.S. incomes will soon be 52%, which will be higher than the highest marginal rates in every other OECD country except Sweden, Denmark and Belgium!

For small businesses, which generate the vast majority of jobs in our country, the situation will be even worse. This new bill will require employers who don't provide health care to pay an additional 8% payroll tax, on top of the 15% payroll tax that is already required. Altogether, this means employers who pay more than $400,000 in total salary costs will have to pay something like 25% more than a person's salary just to hire them. Hire someone at $60,000, and it will cost you $75,000, all in. What do people think this is going to do for employment?

These will be the biggest increases in tax rates and across-the-board payroll taxes since the Great Depression.

Many economists now think that the Great Depression was in large part caused by a massive increase in tax rates, along with a fumbling government's tinkering with the trade and regulatory environment. The Roosevelt Administration took office during a severe economic downturn. The downturn had started, as this one did, with significant over-leveraging, leading to the 1929 Crash. This overleveraging needed to be unwound before recovery could proceed. Unfortunately, an activist government converted that downturn into a nearly irreversible economic malaise. And Roosevelt, like Obama, was a thoroughly inspiring speaker, with an overwhelming popular mandate.

Yes, our health care system needs some help. Costs are out of control and the whole "third-party-payment" system needs to be re-thought. But the current health care bill being rammed through Congress is unlikely to fix this problem for more than a few years at best. This bill represents political short-termism at its very best!

Over the long term, however, it is nothing but assisted suicide for our economy.

© 2013 Peppers & Rogers Group. All Rights Reserved.