Obama wanted to let the Bush tax cuts expire for all. During his push all through election season, he tried to sweeten the deal with targeted tax breaks for small businesses. But this plan and strategy only clarified Obama’s lack of any real world business experience as well as his continuous capacity to undermine the economy.
Ask anyone with proficient tax knowledge and he will tell you that the extension of the Bush tax cuts for all would have been an incredibly more powerful stimulus for the economy. Any targeted tax breaks provide only minor and temporary benefits to small businesses. Unlike politicians who only plan for the next election, businesses engage in long-term planning; therefore, in order to give businesses the confidence they lack due to Obama’s policies, the only sensible program would have been to make the Bush tax cuts permanent.
Interim business aid only adds to economic uncertainty. For instance, an owner might need to hire an employee for $50,000; tax breaks are likely to save the employer only $2-3K. In the overall schematic, that barely makes a difference. More importantly, no one with any business sense only plans for one year, or hires for one year, knowing the rate will go up eventually. Business savvy men and woman plan for the future—upwards of ten years. Temporary, targeted tax breaks reduce the financial logic of long-term planning.
Obama is perpetrating fraud in this country by suggesting that he is focusing on small businesses, but he does so because he knows the rhetoric is appealing. You see, most of the companies that are able to take advantage of any tax breaks are small indeed: 50 to 100 individuals. These types of companies — while good for the economy in and of themselves — are not the arena in which very large job gains will take place and substantially help the economic recovery we so desperately need. The type of businesses that have the size and financial wherewithall to positively impact the economy in the way we need it for the most part are not eligible for any breaks. Thus, the net affect of any tax breaks are unfortunately be negligible. It sounds good to an audience, but in reality it is much different.
Democrats continuously state that only 3% of all small businesses make above $250,000 (their original tax hike threshold), a seemingly low percentage. What they purposely fail to disclose, however, is that figure accounts for more than 50% of all small business income, most of which is taxed individual rates due to the structure of the company. So when the Democrats raised taxes on those upper income brackets, through the process of letting the tax cuts expire, they willfully and quietly raising taxes on small businesses. Now, non-corporate entities face paying more in taxes (39.6%) than even their corporate counterparts (35%).
For example, some companies pay taxes at corporate rates. The highest corporate rate is 35%. If a corporation pays taxes and reinvests its profits, there is no extra tax. But if its profits are given to the owner, they are taxed again on that amount, which is knows as double taxation. So those business owners who wish to avoid the double taxation instead pay at individual rates (via a non-corporate entity), of which the highest rate is now 39.6% This recent tax hike will cripple our businesses. Obama is dangerously incompetent if he refuses to acknowledge this fact. With less available money, not allowing businesses the ability to reinvest curtails future potential growth.
Compounding this, capital spending among businesses is at a thirty-five year low, according to the National Federation for Independent Businesses (NFIB). While some businesses may spend, most will retain their cash until greater economic stability is gained or at least more definite. But even so, basic Economic 101 teaches that spending and consumption are not as strong for the economy as investment is. That is why most business bigwigs —- think Goldman Sachs -— typically reinvest much of their earnings.
Business investment is the greatest path to economic growth. Obama’s new “pay their fair share” tax hike will keep our businesses paralyzed, because short-term solutions inhibit real extended recovery. This administration needs to cease playing roulette with our businesses and give consumers and businesses owners the tools—and the money–for success.