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Stimulus’ $111 Million Adds 55 New Jobs! Suppose that $111 Million Had Remained in the Private Sector?

From the September 17 Los Angeles Times: Two L.A. agencies get $111 million in stimulus funds but have created only 55 jobs.

 

Today, media reports abound regarding this astounding testimonial to the inefficiency and wastefulness of Obama’s Stimulus debacle.  Easy arithmetic proves it: $111 million, 55 jobs…equals about $2 million per job.  Slam dunk for fiscal irresponsibility.

 

But suppose that $111 million had remained in the private sector and not been confiscated by the federal government.  How many jobs might have it created?

 

Let’s build a hypothetical.

 

For the sake of illustration we’ll look at a number of small businesses, each doing $5 million in sales.  And, we’ll assume each has a before tax profit of 15%, or $750,000. 

 

Also, these small businesses are Sub-Chapter S corporations with their income reflected on the owners’ personal tax returns.  Each business would fall in the 35% bracket and pay $262,500 in federal income taxes.

 

Therefore, the $111 million wasted in Los Angeles equates to the income tax paid by 423 small businesses using the assumptions above.

 

Without making this example more complicated (where a CPA would be required), we’ll assume that these small businesses were given an income tax holiday for a year.  Each owner would have an additional $262,500 to invest in his/her business.

 

If they use $100,000 to buy new equipment, increase inventories, etc. (which would indirectly add jobs, but we won’t count that), $162,500 could be used to hire new employees.  At $50,000 per employee (wages, taxes, benefits), each business could hire about 3 new employees.

 

423 small businesses X 3 new employees each = 1269 new employees.

 

Final Score:

 

New job creation when wealth is left in the private sector:  1269

 

New job creation when private wealth is seized by the federal government, strained through multiple levels of bureaucratic inefficiency and redistributed by a command-and-control, politically motivated regime:  55

 

Enough said.

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