I am tired of politics but in the recent debate a topic which I have frequently discussed here took center stage. Taxation of private business in America. Recently, I was critiqued by several readers for making the exact same points that were stated by Romney and Obama. Those unknown wealthy people Obama would tax by allowing parts of an old law to expire, are actually comprised heavily of business owners. Some here even felt I was being disingenuous and several believe that what I wrote was tainted by political views and cannot possibly be realistic. The fact is that about ninety five percent of all businesses in America are forms of S corporations. The profits in these types of corporations are reported by shareholders directly on their tax returns. These profits are never fully spendable cash by the shareholder as reinvestment is absolutely necessary for the continued function of the company. The net tax rate vs personal cash in a pass through S corporation is often very high.
Ok Jeff, we get it.
So remember what happens when a politician wants to limit something they don’t like, something unpopular that a small fraction of the population uses to their own detriment, what do they do? Hmmm…….
They tax it to increase the cost and limit usage. Examples are Cigarettes, Alcohol, CO2, sugary drinks, speeding, junk food, energy, or whatever product becomes the target in the popular media that day. The cost is a load which reduces the buying power of the consumer to direct them away from the behavior.
About half the jobs in the country are created by pass-through S corporations known as “small business” even though they can have hundreds or even thousands of employees. Obama had the guts to actually say, I don’t want to tax them all, only the top 3% of the businesses. Unfortunately, those 3% he mentioned are are comprised of the successful owners who employ a huge portion of America. Many of the rest have little or no income whatsoever. I also own part of a technology holding corporation which by intent creates almost zero income. Those top earning individuals (businesses) are the same people who fall into the 1% known as the “wealthy” that Obama has been intending to hammer all along.
I have to tell you folks, you don’t need to be a very big business to fall in that 1 percent. You also don’t have to be very rich. All you have to really do is be successful at growing to a moderate size and you will get hammered and looking at the various other tax increases proposed, none of it is good for business. No surprise considering the relentless demonization business owners have been suffering for the last 50 years by the left-wing press.
“Jeff it is only a return to the Clinton era tax he is proposing. It isn’t that much money.”
Not true my friends, not at all. Many large expenses have increased faster than inflation since the Clinton days. Fuel – due to left leaning law. Employment insurance – due to left leaning law. Health care premiums (way more than 4%/year by the way) – due to left leaning law. Minority favoritism due to left wing fairness. Environmental regulation, accounting reporting, tax filing, product liability, workmans comp, all skyrocketing due to left wing law. Not that conservatives haven’t added cost also, but this is absolutely the result of a left sided anti-business mentality in media and popular culture.
All of these are hidden costs which could be considered taxes for the common good, that have gone up faster than inflation. Some of it might be ok, but taken together, it has become amazingly destructive to the economy. So after decades of anti-business policy, the economy has weakened severely and almost 20% of the employable workforce is sitting on the couch watching Phineas and Ferb and less tax is collected as a percentage of GDP.
Obama’s answer!! Tax the millionares. AKA, the 3% of small businesses that are actually still successful at creating jobs…..
This simply cannot be due to rational hope for a solution to the lack of jobs. There must be some other motivation because in every other case, when politicians from either party want less of something, they tax it. When they want more of it, they cut the tax.
In fact, Obama was so mixed up that after stating he would increase taxes on millionaires (business owners), he proposed a gigantic 1/4 tax cut on C corporations to create jobs!!! A good idea in my opinion but when you think about it rationally, he is saying we must cut tax for giant corporations (which are easily identified in popular culture as corporations) to create jobs, yet raise tax on other corporations which due to the nuanced tax law can be used to “trick people” by calling them “the millionaires”.
Tthe Obama proposed small business “millionaire” tax will literally have a cost equal to the salary of 10% of our company’s workforce. That money will come from somewhere important because the government still frowns on personal cash printing presses even though theirs are working overtime. It would be fun to try to make a good one though :D What I don’t get is why people can easily grock that a cigarette tax must limit cigarette usage, gas tax limits CO2 production, yet not notice the consequences of a business tax increase when jobs are nearly non-existent.
The world class irony is status-quo in my view, and that is the memo.