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President Obama is advocating a tax increase of 3.6% on income above $250,000. That means someone making $250,000 in taxable income after all deductions for mortgage interest, charitable contributions, state and local taxes, standard deductions, etc., would not be expected to pay one thin dime in extra taxes.

Yes, for small business owners who are sole proprietors, partnerships, or Subchapter S corporations, their business income is personal income. It is the same thing. This is why John Boehner and Republicans are screaming that the proposed tax increase is a tax on small businesses. Keep in mind that only a tiny percentage of small business owners have taxable income north of $250,000. But for those that do, so what?

If, after all personal and business deductions, including stuff like depreciation, interest, company car, cell-phone, life insurance, entertainment and meals, a "job creator's" income is more than $250,000, how does a 3.6% tax increase require him to fire or not hire workers?

Employment by business owners isn't an act of altruism. If an employer can make more money by hiring workers, that employer will hire workers regardless if his personal marginal tax rate is 35% or 39.6%. If an employer can make more money by firing workers, he will fire workers regardless of what his marginal tax rate is. The argument that employers won't be able to afford their workers if their tax rates increase necessarily assumes that employment is a charitable endeavor. Employers seek to maximize profits. They will hire and fire employees according to what maximizes profits. The business owner's marginal income tax rate is not relevant to the marginal utility of an employee.

Having said that, lets look at the numbers. If the tax increase on high income earners goes into effect, a $251,000 income would be subject to a $36 tax increase. Ah, the tyranny! At $300,000 the increase would be $1800. At $500,000, it would be $9000. At $1 million, it would be $27,000. Think about this. A person whose taxable income, after all deductions for mortgage interest, charitable contributions, etc, is $1 million, would be left with $650,000 after taxes at the current rate. With the higher rate, that individual would be left with only $623,000. So John Boehner would have you believe that at $650,000, everything is just hunky dory, but at $623,000, "OMFG, we need to fire some workers!"

Now can we all agree this is total bullshit?

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Comment Preferences

  •  Tip Jar (6+ / 0-)

    "Morality is never upheld by a legalized murder." - Coretta Scott King

    by Sarge in Seattle on Sun Nov 11, 2012 at 02:29:32 AM PST

  •  Agreed! (1+ / 0-)
    Recommended by:
    sydneyluv

    While I like your common-sense analysis of the taxcut/job creation myths, I think you misstate the rightwing argument here:

    The argument that employers won't be able to afford their workers if their tax rates increase necessarily assumes that employment is a charitable endeavor.
    I believe their argument is much more selfish (and stupid).  They believe that to hire an additional employee, there must be some uncommitted profit in the business that can be used to pay that additional salary, social security, and other benefits.  So, if a business’ taxable profits are $1,000,000, a three percent tax increase will cost the business $27,000 that it might have used to hire another worker.  Of course, this is a simplistic and erroneous assumption, failing to take into account that the new employee’s production is likely to increase the business owner’s profits more than $27,000 within the first year, and much more in subsequent years.  And there are many other reasons why the cost/benefit ratio doesn’t preclude hiring in the face of tax increases or other profit losses.  But the taxcut/job creation myth is being foist on the common worker, not on the business owner, so it need not make any sense.
    Now can we all agree this is total bullshit?
    Agreed, indeed!
  •  Excellent! (0+ / 0-)

    The 'shift' is hitting the fan.

    by sydneyluv on Sun Nov 11, 2012 at 05:32:54 AM PST

  •  What is a "small business?" (0+ / 0-)

    A superstar athlete, entertainer, lawyer, etc., who makes multi millions have have their business affairs set up as a small business--fewer than 50 employees or whatever number is used.  We need to keep all this in mind.  

    The part in the diary about the business owner maximizing his profit, not minimizing his taxes, when considering the number of employees hits the truth target dead center.  The true "job creators" are customers with money to spend.

    •  Small business (1+ / 0-)
      Recommended by:
      Calamity Jean

      is often defined as a business with a small number of OWNERS. It has nothing to do with employees, "S C Johnson, a family company," Koch Bros, and Pete Peterson on Wall Street are all "small businesses." I have owned stock in a publicly-traded company that went private by buying up all of its outstanding stock. It was a "Big Business" that grew into an even bigger "Small Business."

      In other words, "Small Business" is a right-sided meme used to shape the false narrative we are bathed in daily.

  •  Adding insult to injury (0+ / 0-)

    Increasing income at the top (making the rich richer) might be justifiable if it really went into consumption or productive investment and thus added to the economy. But that money is lost to the economy because it goes into savings and financial assets (rents). Monetary hoarding, in other words.

    Arguably, since we operate on a fiat monetary system, neither tax revenue nor borrowing is necessary for the government to pays its obligations. Taxes insure the place for the currency as a medium of exchange (taxes empower the dollar's value, what you have to do to get a dollar sets its price). It would seem that the people, the dollar and the economy are best served when taxation is aimed more explicitly at the hoarded money instead of productive capital and consumption.

  •  Answering your question: (0+ / 0-)

    Yes we can!

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