Picture yourself standing in front of the egg case at your favorite supermarket. The shelves are stacked six feet high with cartons, and above it all is a big sign: “Eggs $100.”
How do you react? It depends on the assumptions you make.
Most of us would figure that the price is $100 for a dozen eggs, since that is the usual quantity in which eggs are sold. The Federal Reserve’s current policy of hyper-easy money notwithstanding, $100 is a grossly inflated price for a dozen eggs – or even a gross (a dozen dozen) of eggs. We’d probably walk away shaking our heads.
But if the price is $100 for all the eggs in the egg case, it’s a good deal. You might have to own a chain of roadside diners to take advantage of it, but if you needed that many eggs, you would be thrilled to buy them for just $100.
President Obama wants to sell us some eggs…er, jobs. The price tag for his American Jobs Act is $447 billion. That ought to make one heck of an omelet. So the first question we ought to ask is exactly how many eggs (dang it! jobs!) the president is selling.
The trouble is, he won’t say.
Not once in his not-quite-prime-time speech to Congress last week did the president attach a number to his proposal. He did tell the lawmakers, eight times by my count, to “pass this jobs bill.” He actually used the word “jobs” 77 times. Maybe this was a sort of code. The president may have expected us to infer that his plan would create one job, or 10 jobs, or 100 jobs, for each time he used the word “jobs.” But I missed the memo where he told us what ratio we were supposed to use.
So if we want to decide whether we like the price of the president’s plan, we have to rely on other people to estimate what he is offering. That’s tough, since people have a fairly wide range of opinions about how many jobs the president’s proposals will actually generate.
Like many business owners and managers, I seriously doubt the American Jobs Act will produce many American jobs. Obama wants to extend and expand the payroll tax cut that took effect for employees this year. I am currently deciding whether to hire a couple of people over the next 12 months, and I can assure you that a one-year cut in Social Security taxes that I will pay for them is not a factor in the decision. This payroll tax cut is the centerpiece of the president’s program. But if I hire someone in 2012, only to let them go in 2013, the resulting rise in the unemployment tax rates that I will pay for all 25 of my employees will offset the payroll tax savings I got for that one employee for a year. I can only sensibly hire somebody if I expect to need that person for an extended period.
The president and those who like his plan don’t seem to care much about the views of people who actually do the hiring. They find the analysis of economists more persuasive.
The New York Times, helpfully if anonymously, reported on Saturday that economists expect the president’s plan to produce between 500,000 and 2 million jobs. The paper did not say how long the economists expect those jobs to last, but since Obama’s bill is mostly about short-term stimulus (a word he used zero times last week), I’ll just assume that each job will last for one year.
Now I can get my mathematical arms around the problem. If we pay $447 billion and produce 1 million jobs, we will be paying $447,000 per job per year. Those would have to be awfully good jobs. Too good to be true.
At the optimistic end of the scale, 2 million jobs would bring the unit cost down to just below $250,000 a year. If people actually earned anywhere near the amount the president wants to spend to keep them employed, this would be a handsome sum. So handsome, in fact, that each beneficiary would qualify for a tax increase in 2013, since the president has reasserted his position that the folks he calls “millionaires and billionaires,” even those that earn a lot less than $1 million, should pay for all the good stuff he wants to do before voters go to the polls in 2012.
On the other hand, at just 500,000 jobs, the cost would be $894,000 per job. At that price level, the president might as well make everyone in the country a millionaire or billionaire, so he will have more people to tax to cover the cost of making everyone rich.
But we’re left to guess. The White House isn’t saying how many jobs the American Jobs Act would create, probably because this is the only sure-fire way to avoid being blamed for the failure of people like me, who insist on weighing what we spend against what we get, to create any jobs.
The way I see it, the president hung a sign telling us his eggs cost $447 billion. Then he threw a big drop cloth over the egg case.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book
Looking Ahead: Life, Family, Wealth and Business After 55.
Posted by Larry M. Elkin, CPA, CFP®
Picture yourself standing in front of the egg case at your favorite supermarket. The shelves are stacked six feet high with cartons, and above it all is a big sign: “Eggs $100.”
How do you react? It depends on the assumptions you make.
Most of us would figure that the price is $100 for a dozen eggs, since that is the usual quantity in which eggs are sold. The Federal Reserve’s current policy of hyper-easy money notwithstanding, $100 is a grossly inflated price for a dozen eggs – or even a gross (a dozen dozen) of eggs. We’d probably walk away shaking our heads.
But if the price is $100 for all the eggs in the egg case, it’s a good deal. You might have to own a chain of roadside diners to take advantage of it, but if you needed that many eggs, you would be thrilled to buy them for just $100.
President Obama wants to sell us some eggs…er, jobs. The price tag for his American Jobs Act is $447 billion. That ought to make one heck of an omelet. So the first question we ought to ask is exactly how many eggs (dang it! jobs!) the president is selling.
The trouble is, he won’t say.
Not once in his not-quite-prime-time speech to Congress last week did the president attach a number to his proposal. He did tell the lawmakers, eight times by my count, to “pass this jobs bill.” He actually used the word “jobs” 77 times. Maybe this was a sort of code. The president may have expected us to infer that his plan would create one job, or 10 jobs, or 100 jobs, for each time he used the word “jobs.” But I missed the memo where he told us what ratio we were supposed to use.
So if we want to decide whether we like the price of the president’s plan, we have to rely on other people to estimate what he is offering. That’s tough, since people have a fairly wide range of opinions about how many jobs the president’s proposals will actually generate.
Like many business owners and managers, I seriously doubt the American Jobs Act will produce many American jobs. Obama wants to extend and expand the payroll tax cut that took effect for employees this year. I am currently deciding whether to hire a couple of people over the next 12 months, and I can assure you that a one-year cut in Social Security taxes that I will pay for them is not a factor in the decision. This payroll tax cut is the centerpiece of the president’s program. But if I hire someone in 2012, only to let them go in 2013, the resulting rise in the unemployment tax rates that I will pay for all 25 of my employees will offset the payroll tax savings I got for that one employee for a year. I can only sensibly hire somebody if I expect to need that person for an extended period.
The president and those who like his plan don’t seem to care much about the views of people who actually do the hiring. They find the analysis of economists more persuasive.
The New York Times, helpfully if anonymously, reported on Saturday that economists expect the president’s plan to produce between 500,000 and 2 million jobs. The paper did not say how long the economists expect those jobs to last, but since Obama’s bill is mostly about short-term stimulus (a word he used zero times last week), I’ll just assume that each job will last for one year.
Now I can get my mathematical arms around the problem. If we pay $447 billion and produce 1 million jobs, we will be paying $447,000 per job per year. Those would have to be awfully good jobs. Too good to be true.
At the optimistic end of the scale, 2 million jobs would bring the unit cost down to just below $250,000 a year. If people actually earned anywhere near the amount the president wants to spend to keep them employed, this would be a handsome sum. So handsome, in fact, that each beneficiary would qualify for a tax increase in 2013, since the president has reasserted his position that the folks he calls “millionaires and billionaires,” even those that earn a lot less than $1 million, should pay for all the good stuff he wants to do before voters go to the polls in 2012.
On the other hand, at just 500,000 jobs, the cost would be $894,000 per job. At that price level, the president might as well make everyone in the country a millionaire or billionaire, so he will have more people to tax to cover the cost of making everyone rich.
But we’re left to guess. The White House isn’t saying how many jobs the American Jobs Act would create, probably because this is the only sure-fire way to avoid being blamed for the failure of people like me, who insist on weighing what we spend against what we get, to create any jobs.
The way I see it, the president hung a sign telling us his eggs cost $447 billion. Then he threw a big drop cloth over the egg case.
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