Thursday, October 9, 2008

Taxes and small business

GS Don Morris, Ph.D.


1. Small businesses in America are responsible for the most job creation here in the USA
2. Most small businesses do not make the $250,000 threshold set by Obama’s tax plan on business. They make less than this amount each year. These types of businesses include home businesses, cosmetic sales, cleaning sales, dry cleaners, fast food street stands, lawn gardening and so many others. These businesses would not receive a tax increase.
3. However, the small businesses that meet and exceed this dollar threshold would see a substantial increase in their taxes under the Obama plan.
4. The small businesses that make more than $250,000 a year also are responsible for the creation of the most jobs in America.


I am a small business owner. Allow me to offer some observations based upon sound analysis. It costs money to operate any business. My overhead consists of the following:
· Monthly lease (rent) for my store
· Utility payments to operate the store, e.g., electricity
· Technology costs, e.g., computer, land line support
· Personnel, e.g., salaries, social security, benefits
· Our product costs, e.g., all products in our store
· Property and business taxes

These are common costs found among all small business owners. The preceding are fixed costs of doing business-I owe money every month on all of these items. My ability to make ends meet is generated by the number of my sales each month. When the cost of any of the preceding goes up, my ability to make any money is diminished.

This conceptually is the same thing that happens within all of our homes. Our homes are really “small businesses.” We all have fixed costs: rent/mortgage, utility, electronic, communication, food, clothing, taxes, transportation to name but a few. When any of these items increases our quality of life or even our ability to live is dramatically impacted. What do we do in times of economic challenge? We cut our expenses as best we can or we go out and look for more work or ways to increase our monthly income. Running a small business is the same as running a household.

Recently, where my store is located, the local authorities have indicated they want to increase taxes on our store, our sales and even upon our product line. In order to remain in business, I must examine my fixed costs and ask, “Where can I cut back and reduce my monthly costs? The answer is painfully clear: I must reduce my work force and lay off some of my workers. These are people with their own families, there own need for money-they have bills to pay and I must put them out of work. Now, multiply this by tens of thousands of small businesses across the USA and the results will be enormous. This will have the following impact on our entire economy:

· People without jobs cannot buy things as they do now
· Reduced employment means fewer people in tax brackets who actually pay taxes.
· Reduced tax payers reduces the revenue coming into local, state and federal agencies
· Within a matter of months and weeks in some states, e.g., California, existing programs and employment linked to these programs will be cut
· A domino effect will begin to occur as people will buy fewer products, reduce their service expenses, e.g., eating out once or more a week, going to a show. The tax base continues to shrink.

These are but a few of the outcomes we can anticipate-history proves the case being made. In times of economic downturn it makes no sense to increase the cost to a family or to a small business responsible for the creation of jobs. It is crucial to understand that economies world over experience ups and downs aka good and bad times. What we are going through is not new and we will get through it. Perhaps some of us have been spoiled and actually believed the economy would continue to grow as it has the last 18 years; yes, it has grown contrary to pundits and political parties operating out of their own agenda.

Does this mean there are some fundamental changes in order-of course, this is precisely what needs to happen and good people are working diligently to make sure this occurs. Again, in every economic crisis during the last 100 years in America, people in action created the change. Whining, complaining and blaming others have NEVER fixed a problem. Only people who focus on fixing a problem and then take the appropriate action behaviors transform a problem into a solution. I am pleased to say we, in America, are doing precisely this-yet, the whiners, complainers and blamers are receiving the most press-I wonder why? We know the answer don’t we?

As a family man, I ask that no one raise my taxes-I am not one of the 5-10 per centers. Belt tightening has been in place for some time. I realize it is my responsibility to “live within my means” even when I do not feel like it. This means saving money every month-I notice that we all adjust to the new threshold. Paying off all credit card balances each month and we do our best to no longer rely upon credit to buy products or services. We pay cash for larger items. For example, we want one of those new HD flat-screen televisions-rather than charging it we have established a flat screen savings account and by early next year, in time for the Super Bowl, we will have it! If we need to use credit, we do the research, secure the credit that is best for us and can afford! Individuals have to work in partnership with the organizations, agencies that contribute to all of our economic well- being.

To increase taxes on the very entity that provides us jobs, income and livelihood makes for great emotional speaking points BUT contradicts all economic common sense. Do you believe that you or any other family member in the work force today is motivated to improve his/her lot in life by working harder thus increasing his/her weekly salary only to have all of this hard work taxed away and given to local agencies, organizations and governments that do not use our money in any wise manner?

It is astounding, in today’s age of 24/7 information, how ignorant most of us are regarding taxes-myself included until I decided to get by the rhetoric of all parties. It is crucial to understand the facts and how they apply to our daily lives. Putting aside politics I discovered what do people think the rich pay in taxes:
· The IBD/TIPP poll found that 36 percent of those polled thought the rich contribute 10 percent or less of all federal income taxes.
· Another 15 percent thought the rich pay between 10 and 20 percent,
· While another 10 percent thought the rich's share is between 20 and 30 percent.
· In other words, most people thought the rich pay less -- far less -- than they actually do.
· Only 12 percent of those polled thought the rich pay more than 40 percent

Half of Americans believe, to this day, that the ”rich” pay little taxes-nothing could be farther from the truth. If you believe this no wonder you believe what some others are telling you about taxes. If you believe this false statement, no wonder you want to believe that a change in tax policy is fair. If by fair you mean that someone else, other than you, should shoulder the tax burden is “popularist” rhetoric and contrary to personal responsibility. What are the facts regarding the “rich”?
· The top 5 percent (those making more than $153,542 -- the group whose taxes Obama seeks to raise) pay 60 percent of all federal income taxes.
· The rich (aka the top 1 percent of income earners, those making more than $388,806 a year), according to the IRS, pay 40 percent of all federal income taxes.
· The top 1 percent's taxes comprise 17 percent of the federal government's revenue from all sources, including corporate taxes, excise taxes, social insurance and retirement receipts.

The common story line is “the rich can afford to pay these increase in taxes, so make them pay more”. The social and humanistic programs that so many Americans are the recipients of and employed by are funded by these taxes. To suggest that the “non-rich” are penalized is patently false, unfair and absurd at best. If you increase their taxes, less money over time will become available to fund these programs as I have previously discussed in this article. If you feel that it is a fairness issue, allow me to ask do you believe you are entitled to certain levels of money or do you believe it must be earned? Your response will explain much about who you are and what you value.

Rather than believe what some pundit or political talking head says about taxes seek out the facts. Listen carefully to each of the two parties positions regarding taxes and vote for the candidate of your choice.

1 comment:

There is NO Santa Claus said...

If there's one thing President Bush taught us it's this: Tax cuts do NOT cure all economic woes.

That brings me to this question: Why are BOTH candidates for President telling us they can cure America's economic problems with tax cuts?