"Patriotic millionaires" call for their tax cuts to expire

[9-10ths_Penguin]

Once again, you just don't understand that many small businesses are taxed as personal income. Yes, corporations get taxed separately from personal income, but all businesses are not corporations.

But you're taxed on net revenue, not gross revenue, right?

In the example you gave before, you had a small business person with $1 million in revenues, but personally living on less than $100,000 a year. His personal income tax burden would be closer to a $100,000/year income than $1 million/year, right?

Now... I know that it's hard to do an apples-to-apples comparison, because if he set the business up as a corporation, the company would probably be paying taxes itself, but with a sole proprietorship model, those taxes get paid by the business owner.

So, I would expect that the taxes for that small business person would be around the total of:

- the normal personal income taxes on $100,000/year
- the corporate income taxes on a $1m/year company

Is this not the case?

Also, I'm not sure what point you're trying to make by pointing out that not all businesses are corporations. If an entrepreneur is operating under one business structure while he could choose to lower his tax burden by adopting a different business structure, the fact that he doesn't do this isn't the government's problem, is it?

What it boils down to, the more money the government takes, the less I have to invest. The less money I have to invest, the less money I make AND THE LESS PEOPLE I EMPLOY!

If your tax burden is the limiting factor on your growth in your case, fair enough, but I don't think this is true across the board.

I know several businesses where the limiting factor on hiring right now is that there just isn't any more work to be had. Now, if they fight hard enough, they might be able to snatch projects away from other companies, but that just moves the jobs from one bin to another; it doesn't actually create any new jobs in the system.

I guess what I'm getting at is that your argument that business taxes reduce the ability of business to grow is inherently based on the idea that growth is limited on the supply side. However, I think there are a ton of limits on the demand side as well (case in point: the problems you described with non-paying customers).

Which one is the controlling factor? It probably varies from industry to industry... but in cases where growth is already capped out based on demand-side restrictions (e.g. there are only so many people with the ready cash for your product or service), then I could see situations where taxation doesn't reduce growth, because it doesn't limit growth any more than the constraints already in place.

I mean, say only 100 people in town can afford to buy a hot water heater this year and you already have the staff to handle this, you're not going to hire any more hot water heater installers regardless of what your tax rate is.

 

[Reverend Rick]

Rick, please take a deep breath. I understand how business works. What I don't understand is your point in wasting time with these details. Here's the deal: You make $1 million in personal income, that's personal income. According to you the government should just not tax you at all. That way you'll be that much more willing to expand your business. However, since we need taxes, we need to tax you. Since you're making a lot of money, you pay a higher percentage in tax.

If you decide to reply, please leave all the nonsense about unrelated stuff like bailing out GM and "seeing big piles of cash", etc. I'd rather you stick to the actual topic at hand, which is the fact that the top 1% of earners have seen their income shoot up drastically relative to everyone else.

From 1979 to 2007, the average after-tax income of the top 1% went from $347,000 to about $1.3 million. That's an increase of about 281 percent. During that same period, the middle quintile (the earners in the 40-60% range) saw their average after-tax income go from $44,100 to $55,300 or about a 25 percent increase. The bottom quintile of earners saw theirs go from $15,300 to $17,700 or about 16% increase. So, that top 1% has done very well over the last 30 years, and yet the majority of the country isn't seeing much improvement and obviously it hasn't helped the economy.

Your ignoring the fact that the top 1% did not spend every dime they made on personal expenditures. They took risks. They worked harder and longer than anyone else.

The 40-60% range folks went home on time, took the weekend off and spent time with their family. They failed to save and invest for the future. Many lived beyond their means and incurring a large amount of debt along the way.

Living paycheck to paycheck like cattle in the field awaiting the farmer to give them their next meal.

Not everyone who goes into business becomes rich. Many risk it all and lose everything.

We don't need to pay more taxes, the Federal Government needs to SPEND LESS.

The Government IS THE PROBLEM NOT THE SOLUTION.

Revoltinjest said it best. We take away money from productive people and give it to unproductive people. Thats rewarding mediocrity and penalising success.

 

[Revoltingest]

But you're taxed on net revenue, not gross revenue, right?

Rev Rick's business is different from mine, but I'm taxed upon a hybrid of gross revenue, net income, & fixed taxes.
This poses great risks in meeting tax liability, since my income tax rate can exceed 100% in some years.
(IRS accounting methods are not always GAAP.)

 

[9-10ths_Penguin]

Rev Rick's business is different from mine, but I'm taxed upon a hybrid of gross revenue, net income, & fixed taxes.
This poses great risks in meeting tax liability, since my income tax rate can exceed 100% in some years.
(IRS accounting methods are not always GAAP.)

That's crazy.

But it sounds to me like the solution is tax reform generally, not tweaking the rates for each income bracket.

 

[Revoltingest]

That's crazy.

But it sounds to me like the solution is tax reform generally, not tweaking the rates for each income bracket.

True dat! We need major reform. But if it happens thru a democratic political process, we'll probably be even worse off.
The vast majority of voters have no clue what business taxation is like.

 

[Reverend Rick]

But you're taxed on net revenue, not gross revenue, right?

In the example you gave before, you had a small business person with $1 million in revenues, but personally living on less than $100,000 a year. His personal income tax burden would be closer to a $100,000/year income than $1 million/year, right?

Now... I know that it's hard to do an apples-to-apples comparison, because if he set the business up as a corporation, the company would probably be paying taxes itself, but with a sole proprietorship model, those taxes get paid by the business owner.

So, I would expect that the taxes for that small business person would be around the total of:

- the normal personal income taxes on $100,000/year
- the corporate income taxes on a $1m/year company

Is this not the case?

Also, I'm not sure what point you're trying to make by pointing out that not all businesses are corporations. If an entrepreneur is operating under one business structure while he could choose to lower his tax burden by adopting a different business structure, the fact that he doesn't do this isn't the government's problem, is it?


If your tax burden is the limiting factor on your growth in your case, fair enough, but I don't think this is true across the board.

I know several businesses where the limiting factor on hiring right now is that there just isn't any more work to be had. Now, if they fight hard enough, they might be able to snatch projects away from other companies, but that just moves the jobs from one bin to another; it doesn't actually create any new jobs in the system.

I guess what I'm getting at is that your argument that business taxes reduce the ability of business to grow is inherently based on the idea that growth is limited on the supply side. However, I think there are a ton of limits on the demand side as well (case in point: the problems you described with non-paying customers).

Which one is the controlling factor? It probably varies from industry to industry... but in cases where growth is already capped out based on demand-side restrictions (e.g. there are only so many people with the ready cash for your product or service), then I could see situations where taxation doesn't reduce growth, because it doesn't limit growth any more than the constraints already in place.

I mean, say only 100 people in town can afford to buy a hot water heater this year and you already have the staff to handle this, you're not going to hire any more hot water heater installers regardless of what your tax rate is.

Good post 9/10ths, yes you are right. I am limited by demand more than investment capital right now. I'm impressed how well you grasp what i have been saying and see the real picture.

Most of my customers are doctors who invest in commercial real estate. They are the ones who are having trouble getting financing for projects. In the past, they procured a building loan and had an interest only payment arrangement.

Once the building was completed, they converted the building loan into a mortage loan after appraisal. The building loan enabled the customer to pay the contractors for the percentage of work completed each month.

Once these loans dried up, the contractors have been completing 100% of the work before they see a penny. In essence, the subs have been bankrolling the projects instead of the banks.

Not every contractor has the cash on hand to make an arrangement like this so yes, while there is no more work out there, we are chasing the lions share of the work that is left while the chips are down.

The competition is going out of business and we will be poised to expand when the demand does increase and hopefully increase the profit margin with less competition.

So while you are right about the demand being the limiting factor right now, the amount of capital limits just how many businesses I shoot out of the saddle.

While I may employ more folks, the businesses I run off are laying off for a zero gain in employment in my trade. Before you cry foul, if I had not financed these projects the bank dropped the ball on, even more folks would be without a job.

 

[Magic Man]

Your ignoring the fact that the top 1% did not spend every dime they made on personal expenditures. They took risks. They worked harder and longer than anyone else.

No, they didn't. Yes, they probably took risks, but they didn't necessarily work harder or longer than anyone else. For every one of them who worked long hours enduring a lot of stress, you can find at least one person in the bottom 50% who worked at least equally long hours and endured at least as much stress.

The 40-60% range folks went home on time, took the weekend off and spent time with their family. They failed to save and invest for the future. Many lived beyond their means and incurring a large amount of debt along the way.

Living paycheck to paycheck like cattle in the field awaiting the farmer to give them their next meal.

Wow, tell us how you really feel. Many small business owners aren't in that top 1%. The average income for the top 1% is $1.3 million. That wouldn't include a whole lot of small business owners. The middle quintile is not made up of people who go home on time, take weekends off and spend time with their families. That's some of them, sure, but then some of the 1% do the same, or have even more free time. And the reason so many people from the middle incurred so much debt is because the economy is geared towards the top 1%.

Not everyone who goes into business becomes rich. Many risk it all and lose everything.

And?

We don't need to pay more taxes, the Federal Government needs to SPEND LESS.

No, it's both.

The Government IS THE PROBLEM NOT THE SOLUTION.

No, they're both.

Revoltinjest said it best. We take away money from productive people and give it to unproductive people. Thats rewarding mediocrity and penalising success.

Great, so let's reform that too, while we're at it. That doesn't contradict the idea that the top 1% of earners aren't paying their share.

 

[Reverend Rick]

That doesn't contradict the idea that the top 1% of earners aren't paying their share.

They pay the highest tax rate but they are not paying their fair share.....right!

 

[Magic Man]

They pay the highest tax rate but they are not paying their fair share.....right!

Do you not understand that they can be paying the highest tax rate and not be paying their share? By that logic, someone making $10 million could be paying 33% in taxes versus 32% by someone making $300,000, and that millionaire would be paying his fair share.

They not only need to be paying the highest tax rate, but also the right amount proportionally.

 

[9-10ths_Penguin]

Good post 9/10ths, yes you are right. I am limited by demand more than investment capital right now. I'm impressed how well you grasp what i have been saying and see the real picture.

Thanks.

Most of my customers are doctors who invest in commercial real estate. They are the ones who are having trouble getting financing for projects. In the past, they procured a building loan and had an interest only payment arrangement.

Once the building was completed, they converted the building loan into a mortage loan after appraisal. The building loan enabled the customer to pay the contractors for the percentage of work completed each month.

Once these loans dried up, the contractors have been completing 100% of the work before they see a penny. In essence, the subs have been bankrolling the projects instead of the banks.

So how do tax rates factor into this? Are you saying that if your customers' income tax rates were lower, there would be more work to go around?

Not every contractor has the cash on hand to make an arrangement like this so yes, while there is no more work out there, we are chasing the lions share of the work that is left while the chips are down.

The competition is going out of business and we will be poised to expand when the demand does increase and hopefully increase the profit margin with less competition.

So while you are right about the demand being the limiting factor right now, the amount of capital limits just how many businesses I shoot out of the saddle.

While I may employ more folks, the businesses I run off are laying off for a zero gain in employment in my trade. Before you cry foul, if I had not financed these projects the bank dropped the ball on, even more folks would be without a job.

I'm not "crying foul" - I see why what you describe makes sense from your position. At the same time, I hope you appreciate that to someone concerned with the economy as a whole, it doesn't matter that much whether a tradesperson is employed by you or your competitor as long as he's got a job somewhere. While cannibalism between businesses can benefit the individual company doing the eating, it's not usually the sort of thing that a government goes out of its way to encourage.

Also, I think the message that I get from you is that the negative business climate you're experiencing now is more attributed to the financial crisis than it is to taxation. I might be throwing fuel on the fire by saying this, but I think your case might be a case for "bigger" (but effective) government, not smaller... at least in terms of its regulatory power.

Look at the difference between Canada and the US: the financial crisis hit here as well, as it did most of the world, but it's been nowhere near as bad here as it has been down your way. I think the big reason for this is that the Canadian federal government keeps a much tighter rein on Canadian banks and lending institutions than is the norm in the US. They weren't allowed the exposure that the American banks were, and therefore they didn't suffer as much when the crash came.

Our growth has slowed, but it's still positive. Big layoffs have been rare, and those that have happened were generally the result of problems outside Canada (e.g. the Big 3 automaker's closure of several plants in Ontario).

This is one example of why I don't generally agree with the idea that "big government" is necessarily anti-business. Big, ineffective government certainly is, but I think that responsible regulation is an important element of providing a positive environment for business... as well as the population at large.

 

[Reverend Rick]

They not only need to be paying the highest tax rate, but also the right amount proportionally.

So you are saying the risk takers should not be compensated for their risk?

When you go to the casino, you take a hard look at the odds. When you reduce the odds, you lose players.

I understand your point Matt, you keep mentioning what people can "afford".

Just because a rich person can afford something does not mean they will purchase it unlike the 40-60% person who spends every penny they make and more.

 

[Revoltingest]

I think I've figured out the definition of "fair share" in the context of taxing the wealthy.
It isn't an actual number...just "more than it currently is".

 

[Magic Man]

So you are saying the risk takers should not be compensated for their risk?

No, they should. I'm saying they should pay the amount that makes sense. They used to pay 70+% while taking risks, and they still went ahead and took those risks. I'm not sure why they couldn't continue to take risks now while paying, say, 45-50%. They're still making a crapload of money for taking risks.

When you go to the casino, you take a hard look at the odds. When you reduce the odds, you lose players.

I understand your point Matt, you keep mentioning what people can "afford".

Just because a rich person can afford something does not mean they will purchase it unlike the 40-60% person who spends every penny they make and more.

Well, yeah, it's a bit harder to spend $1.3 million a year than it is to spend $50,000.

 

[Magic Man]

I think I've figured out the definition of "fair share" in the context of taxing the wealthy.
It isn't an actual number...just "more than it currently is".

No, it's definitely an actual number. I'm not going to claim I can be precise enough to give you the exact number it should be. The highest tax bracket used to pay twice the percentage it does now. I don't know whether going quite that high is the way to go, but it certainly seems we can go a lot higher than what we have now.

 

[Revoltingest]

No, they should. I'm saying they should pay the amount that makes sense. They used to pay 70+% while taking risks, and they still went ahead and took those risks. I'm not sure why they couldn't continue to take risks now while paying, say, 45-50%.

I could live with that rate, if....
- I could deduct all my actual business expenses.
- The tax code were simplified so that I didn't have to spend many thousands on tax accounting.
- Income averaging were reasonable.
- Capital gains taxes were indexed for inflation
- The IRS had to pay us for our time & costs for compliance audits.
- Taxing authorities were required to obey the law, & would be punished for their infractions.

 

[Reverend Rick]

Thanks.


So how do tax rates factor into this? Are you saying that if your customers' income tax rates were lower, there would be more work to go around?


I'm not "crying foul" - I see why what you describe makes sense from your position. At the same time, I hope you appreciate that to someone concerned with the economy as a whole, it doesn't matter that much whether a trades person is employed by you or your competitor as long as he's got a job somewhere. While cannibalism between businesses can benefit the individual company doing the eating, it's not usually the sort of thing that a government goes out of its way to encourage.

Also, I think the message that I get from you is that the negative business climate you're experiencing now is more attributed to the financial crisis than it is to taxation. I might be throwing fuel on the fire by saying this, but I think your case might be a case for "bigger" (but effective) government, not smaller... at least in terms of its regulatory power.

Look at the difference between Canada and the US: the financial crisis hit here as well, as it did most of the world, but it's been nowhere near as bad here as it has been down your way. I think the big reason for this is that the Canadian federal government keeps a much tighter rein on Canadian banks and lending institutions than is the norm in the US. They weren't allowed the exposure that the American banks were, and therefore they didn't suffer as much when the crash came.

Our growth has slowed, but it's still positive. Big layoffs have been rare, and those that have happened were generally the result of problems outside Canada (e.g. the Big 3 auto maker's closure of several plants in Ontario).

This is one example of why I don't generally agree with the idea that "big government" is necessarily anti-business. Big, ineffective government certainly is, but I think that responsible regulation is an important element of providing a positive environment for business... as well as the population at large.

My biggest concern is the banks locked the barn after the horse was stolen. If you have a doctor that has borrowed seven times from you before and never missed a payment, why would you deny his 8th request for a builders loan?

The answer, regulation. Bank officers are scared to do anything because they don't fully grasp the new regs. One officer told me, "I'm not denying your loan, I'm just not approving it yet". She told me in the old days if you wrote a loan and it went south, you might get fired. Now she says there is a possibility that she could go to prison if the new protocol is not followed.

Another problem we have is the DIR, (debt to income ratio). Real estate is appraised lower so the number has fell making the loans less attractive.

Our approach is to build a building and have the tennants move right in so the building is taking in more than the mortage payment. Banks are fine with this arrangement and the approval is much quicker.

 

[Magic Man]

I could live with that rate, if....
- I could deduct all my actual business expenses.
- The tax code were simplified so that I didn't have to spend many thousands on tax accounting.
- Income averaging were reasonable.
- Capital gains taxes were indexed for inflation
- The IRS had to pay us for our time & costs for compliance audits.
- Taxing authorities were required to obey the law, & would be punished for their infractions.

I think we can work out a deal there. Do you want to meet me in Washington?

 

[Reverend Rick]

Well, yeah, it's a bit harder to spend $1.3 million a year than it is to spend $50,000.

No it's not! :no:

 

[Magic Man]

No it's not! :no:

Ummm...what? How is it not harder to spend $1.3 million in a year than $50,000?

 

[Revoltingest]

I think we can work out a deal there. Do you want to meet me in Washington?

Nothing productive would ever happen there.
Vegas!