Hi Everyone,

I thought I take a look at the proposal of Senator Obama to levy Social Security Tax on people making in excess of $200,000.

Let’s look at a small, successful business owner that makes a $400,000 profit in his business. Assuming he has no other income, what would his tax rate be? On the federal side, his income tax rate is 35%. In addition to that, he would 15.3% in Self-Employment tax, i.e. Social Security and Medicare. Depending on the state he lives in, he would also owe somewhere between zero and 10% in state income taxes. His effective tax rate could potentially be in excess of 60%. That is confiscatory.

The additional 12.4% he would be pay for the income between $200,000 and $400,000 amounts to almost $25,000. That means that he will not be able to hire a few part-time workers, invest the money in his business for further growth and jobs.

Considering how money is wasted in Washington, and how current excess Social Security taxes are spend right away, these additional taxes will very little for the federal budget, but change behavior among the most successful entrepreneurs in this country with a negative effect on the economy and job growth.

Please feel free to comment.

Cheers,

Patrick