tax cut poppycock

            Should the Republican party retake both houses of Congress (or at least one), you can expect one of their first orders of business to be making the Bush tax cuts permanent.  They will ballyhoo the fact that they want to extend all the cuts, but since over 95% of Bush’s cuts went to the top 5% of incomes, what they are really advocating is continued lower tax rates for the richest among us.

            They’ve been beating this drum long enough to recognize that advocating lower taxes for Wall Street bankers and corporate CEO’s is politically not bright, so recently they have changed their tactics and begun expressing great concern over the effect eliminating the tax cut for those making over $250,000 might have on small businesses.  Say what?

            One thing Republicans have done for some time now is expect  the public to be stupid enough to buy truly outlandish claims.  The second thing they’ve done is too frequently be right about the first thing.  Their heartfelt concern about the dire effect raising the tax rate on the super rich would have on small businesses is an excellent case in point.

            First of all, most small businesses that gross over $250K exist as some kind of corporate entity.  That means, by law, business funds and personal funds have to be kept entirely separate from one another and any change in the personal income tax rate of such a small business owner would effect his personal wealth in exactly the same way it would the wealth of a Wall Street banker or a clerk in a Wall Street bank, but would have no effect on his business at all.

            That leaves the smaller group of small business owners who do not incorporate but simply have as their personal incomes whatever is left after all expenses are deducted from their business’ gross income.  Here again, Republican concern is misplaced or perhaps deliberately deceitful.

           

            In such a case, the gross income of the business is likewise the gross income of the business owner.  And he, unless he’s stupid, will take legitimate tax deductions for inventory, rent, insurance, employee wages,  upkeep and so on—with the result being both his actual personal income and his actual taxable income.

            Let’s say our small businessman owns a construction company and is considering expanding his business by adding 10 employees.  Again, unless he’s stupid, he’s only going to go ahead with that plan if his research tells him that the gross income generated by 10 additional employees will, minus expenses, still increase his net income.  So perhaps his research indicates the new business generated by the new employees will increase his net income (which, again, is synonymous—or nearly so-- with his taxable income) by $50,000—taking him from, for simplicity, $250K to $300K.

            At present, with the Bush rates in place, that means his tax liability will be about

$99,000.  Substitute what that rate would be if the Bush tax cuts are eliminated and his tax liability would be about $108,000.  What the Republicans would have you believe is that owing an additional $9,000 in taxes (meaning his personal net income gain would be $41,000 rather than $50,000) would convince any responsible small business owner to simply forego the expansion and give up the $41K he would net.

            If this doesn’t make any sense to you, you would probably be a pretty good small business owner; if it does make sense, you should probably stick to earning a wage somewhere.