Don't Kill the Golden Goose
Addressing the Congress recently, President Obama promised to raise the income tax on the top 2% of taxpayers. We're talking about Bill Gates and Alex Rodriguez, right? But wait. The President went on to define this group as those with more than $250,000 in annual taxable income. That's not wealthy.
Lately, there has been some confusion about whether this increase will hurt small businesses. To contribute to this debate, please, introduce this real small business story into the record.
This small business puts $100,000 of profit on the bottom line. Big businesses blow more than that in wasted soap in restrooms. But for a small business to earn these profits, someone worked extremely hard and smart and, at some point, risked everything.
The owner pays herself $75,000 in salary. Not too bad by national averages, but still less than she could make working for a big company. And when the work, worry and risk-taking is considered, not enough. Oh, by the way, this business that our intrepid entrepreneur started from scrach now provides livelihood, benefits and prosperity for the families of its ten employees. Meanwhile, the spouse of this employer has a job elsewhere that pays him $95,000 annually.
Like millions of others, this small business is structured as a Sub S Corp. That means profits are distributed to the shareholders as taxable income to be reported on their personal return. This couple files jointly so, after reasonable personal deductions, their taxable income is still over $250,000. Here are two critical arguments in this debate:
1. Most of the hundred grand of business profits don't exist as cash - it's tied up in inventory, receivables, etc. - but is still taxable.
2. Ask small business owners, as I have, what they would do if their taxes were lower and every one will tell you they would re-invest that precious capital in their business for capital improvements and to employ more people.
So, with all due respect, Mr. President, if you want to get our economy going again, don't raise taxes on even one member of the sector that creates over half of the U.S. economy, signs the front of over 70 million paychecks each Friday and creates most of our new jobs. Instead, find out what they need to grow their businesses and do that - all of it. Even if it means GM, Citi and AIG get a little less bail-out money.
And, Mr. President, here's a political bonus that you probably haven't considered: This strategy will do more to get you re-elected in 2012 than anything else you could do.
Write this on a rock... Small business is America's Golden Goose; don't kill it.
Jim Blasingame is creator and host of the Small Business Advocate Show.
Copyright 2009. All Rights Reserved.
