Unemployment seems to be up. Let's hire $165 million worth of $30k/yr employees and see how the tax revenue works out! Here are the numbers:
- $30,000 annual salary
- $2,295 employee FICA contribution
- $2,295 employer FICA contribution
- $500/mo health plan ($6000/yr)
- $5,450 standard deduction
- $3,282 income tax
- $38,295 per employee cost
- $7,872 per employee federal tax
Perhaps that $165 million will be spent in a way that will garner more taxes, but that does not seem likely. In effect, Barney Frank and Barack Obama have "galted" the AIG bonuses by reducing the government revenue on that money. Who knew we would have friends in such high places!?!
Personally, I have mixed feelings about the AIG bonuses. Megan McArdle captures my sentiments well: "...the AIG retention bonuses raise a question the government is going to have to ask again and again before all this is over: do we want to make a point, or do we want to make money?"
I think the economic crisis and ensuing turmoil will reveal that our "progressive" tax system is quite brittle. Tax revenues are going down and our politicians will continue to raise taxes on the top quintile. That will cause some employees to increase their compensation by asking for more vacation time or a four day work week while maintaining or decreasing their salary. Given the high unemployment, many people will choose to be underemployed. This will also reduce government tax revenues.
Note: In my example, I'm ignoring the earned income tax credit. I assume all employees are single. If we hire married people, both the health plan and the standard deduction go up, reducing the per employee tax burden.
Update 4/2/2009: I didn't realize this because it has not been widely reported, but many (most?) of the AIG employees receiving these bonuses, have opted to take a 1$/yr salary (Don Surber noticed). I heard this from a banking friend. Bill Whittle alludes to it in his Tone Deaf 2 post. Obviously, that changes all the math above.