With Obama's re-election, federal and state rates in Wisconsin will hit 65 percent, international manufacturing exec says

Two weeks before the presidential election, the owner of a Milwaukee-based international manufacturer warned his employees of "personal consequences" if Barack Obama were re-elected.

The Oct. 23, 2012 email from Rite-Hite owner Mike White spurred state and national news coverage, a complaint with the state election board and even a review by local prosecutors.

The election is over, but some of White’s claims remain relevant.

He began the email by saying:

"Every Rite-­Hite employee in America should understand the personal consequences to them of having our tax rates increase dramatically if President Obama is re-elected, forcing taxpayers to fund President Obama's future deficits and social programs (including Obamacare), which require bigger government.

"Rite-­Hite is a Subchapter S corporation for taxes, meaning that our corporate tax rate is the highest personal tax rate. So what? Well, our RSP (retirement savings program) contributions are based on after-tax profits. The tax rate we pay is not 17 percent, as Warren Buffett would have you believe; with state taxes it is roughly
45 percent."

He continued by stating:

"President Obama has announced that our planned tax rate would increase to roughly 65 percent, reducing our after tax income by 36 percent and dramatically reducing, if not eliminating, your and my RSP contributions."

Obama, of course, was re-elected.

Does that mean state and federal income tax rates are on their way up to a promised combined 65 percent for some taxpayers?

Background

Rite-Hite, which employs some 1,400 people in North and South America, Asia and Europe, specializes in the manufacture and sale of loading dock and industrial door safety products. White, the company’s chairman as well as owner, is active civically, serving on the boards of Milwaukee’s Summerfest, which is billed as the world’s largest music festival; the Village of River Hills, an upscale Milwaukee suburb; and the foundation of Concordia University Wisconsin. He’s also a contributor to Republican candidates.

We’re leaving aside the question of whether White’s email amounted to voter intimidation, which the local district attorney’s office is still reviewing. White said in the e-mail that neither he nor his company "will ever prejudice any employee for their political views." There are also lingering questions about the company’s plans in the wake of Obama’s re-election.

Neither White nor his company's attorney responded to our requests for information about the claim of tax rates rising to 65 percent. But we can break it down.

White’s e-mail said RiteHite is an "S corporation" and that "our corporate tax rate is the highest personal tax rate."

Shareholders of an S corporation report the business’ income on their personal tax returns and are assessed tax at their individual income tax rates, according to the Internal Revenue Service. The highest individual tax rate is 35 percent, which is for people with an income above $388,350. So, White’s claim focuses on these high-income taxpayers.

Increasing rates

Obama has proposed eliminating what are known as the Bush-era tax cuts, enacted under President George W. Bush, for individuals earning more than $200,000 and married couples earning more than $250,000. That would raise the top federal rate to 39.6 percent.

As for Wisconsin, its highest income tax rate is 7.75 percent. It is not slated to increase; in fact, Gov. Scott Walker has pledged to cut income taxes, perhaps in his 2013-15 budget.

Add the top state rate of 7.75 percent to the highest federal rate proposed by Obama, 39.6 percent, and you get just over 47 percent -- slightly more than the 45 percent White said Rite-Hite is paying.

To further analyze White’s claim, we contacted several experts, including Milwaukee tax attorney John Vitek; Wisconsin Taxpayers Alliance research director Dale Knapp; and Jack Norman, director of Tax Fairness WI, a joint project of two left-leaning Wisconsin organizations.

Each said the new combined state-federal rate that Rite-Hite will pay as a result of Obama's re-election could exceed 50 percent:

39.6 percent -- new top federal rate proposed by Obama
7.75 percent -- top Wisconsin rate (unchanged)
3.8 percent -- tax hike, starting in 2013, as part of "Obamacare" (the hike is on capital gains, dividend and interest income of high-income earners)
2.35 percent -- Medicare tax (includes an increase of 0.9 percent under Obamacare)
53.5 percent -- total combined rate

So, that’s a significant increase. But it’s also well short of 65 percent.

Two final notes:

Vitek, the tax lawyer, said Rite-Hite doesn’t actually pay the taxes to the government; rather, it pays dividends to its shareholders to cover the taxes they are assessed as shareholders of Rite-Hite.

Norman, the tax fairness group director (who wrote an analysis of White's e-mail), notes that tax rates are progressive -- you pay lower rates on the first portions of your income and higher rates on the higher portions.

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For example, the federal tax rate is 10 percent on income up to $17,400; the rate is 15 percent on income between $17,400 and $70,700; and so on. Norman's point is that high-earners like White pay the highest rate, currently 35 percent, only on the portion of income above $388,340.

Our rating

The owner of Milwaukee-based manufacturer Rite-Hite said that with Obama's re-election, the combined state and federal tax rate paid by his company would rise to about 65 percent.

Experts say the rate might exceed 50 percent, but they see no way of it reaching 65 percent.

We don't have the benefit of White's math to consider, but barring any other evidence, we rate his claim False.