Some common sense tax math

Hey, everybody, listen up to some common sense tax math that the Republicans are hoping you are too scared or stupid to do. After listening to John Boehner and every other right-wing pundit out there, it is time to just come clean about what the expiration of the Bush tax cuts really mean.

Allowing tax cuts to expire will hurt job growth
Nope. The tax cuts were not designed to stimulate job growth, only to give back tax money that was “over-collected” or what was then called a surplus. If the tax cuts were designed to create jobs, we would not be in the recession we are in as they have been in effect throughout 2007-2010. Really. You can check this out for yourself.

Capitalists don’t create jobs with tax credits. They put the money away so they are in a better cash position when the economy starts improving and they see customers on the horizon. Then, they invest. Machines first, people second.

Allowing tax cuts to expire will hurt small business
Think about this for a second. The top tax rate is applied to the PROFIT over the $250,000 mark. I don’t know of any small businessperson who pays tax on revenue, but I could be wrong. If you find one, let me know.

For a small business to generate $250,000 in profit that slides over as personal income on an S-corp, assuming a very generous 20% margin, the revenue from activity must be $1,250,000.00 That’s $1.2 million folks. Raise your hand if you have a small business making $1.2M at 20% net profit.

If you own a restaurant and are open 365 days a year, that means you have to serve 171 meals at an average of $20.00 per to hit that revenue mark. I’m not aware of many restaurants operating at 20% net margin, so let’s say at 10%, you have to serve an average of 343 meals at $20.00 to hit that number. And that is being open every day. If you are open for 12 hours, that means 14 meals every hour at 20% or 29 meals every hour at 10%. That is one very busy restaurant.

When you start breaking down the amount of effort it takes to generate a net income of $250,000 in most small businesses, it is a bit unrealistic. Even if you take a look at freelancing businesses and start breaking the numbers down for someone like Chris Brogan who claims to get $22,000/day for onsite work, he still has to work 57 events a year to hit that magic $250,000 number at 20%. (I don’t know what his margin is. Maybe it’s higher.) When you look at the detail of what is takes to generate $250,000 of net in a business, the claim that many small mom and pop small businesses will be hurt by the tax cuts expiring just doesn’t add up.

Am I wrong? What am I missing?

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About Rufus Dogg

I'm a dog who writes a blog. It is not a pet blog. It is a real blog that talks about real ideas. No, really. I do my own writing, but I have a really, really cool editor who overlooks the fact that I can't really hit the space-bar key cause I don't have thumbs. I talk about everything from politics to social issues to just rambling about local problems. And, sometimes I just talk about nothing in particular. Google+
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6 Responses to Some common sense tax math

  1. euonymous says:

    You didn’t miss a trick. This nonsense about the tax cuts is just more right wing red herrings. The lesson from the Reagan years was that there is no such thing as trickle down economics. The lesson from the FDR years was that you need to put people to work. Money, like the fertilizer it is, needs to be spread around the roots of the economy. That means we need more jobs. And we need jobs for all the people who used to have manufacturing jobs in this country before our tax code encouraged companies to move those jobs offshore. (How about a 6 month amnesty program to enable companies to repatriate offshore profits?) I continue to believe that this country suffers from the toxic combination of democracy and capitalism. I was pleased to find James Kwak’s blog piece http://baselinescenario.com/2010/09/13/the-importance-of-the-1970s/#more-8026 I don’t know if we can dig ourselves out of this mess. Improvement would appear to depend upon intelligent, public spirited statesmen, of whom we have darn few right now.

  2. Rufus says:

    If you want to see a perfect example of how money influences politics, take a look at the Health Care Reform law. We should have been focusing on how to provide health care to US citizens firstly as a matter of morality, but also as a matter of national security and our ability to compete in a global marketplace. Instead, what we ended up with is a bill that all but guarantees the continued profitability of insurance companies. Corporations have become so interwoven into our day-to-day lives that uncoupling from them is now all but impossible. FICO Scores rule everything we do, including finding a job, whether or not we can get a cell phone (becoming a BASIC communication device), where we can live, the cost of auto insurance.. HOW THE HELL DID ALL THAT HAPPEN?? I fear politicians less than I do the powerful corporate “free expression.” Which is why Tea Party candidates don’t much worry me; they all bang into the very real, very powerful business lobby. If they don’t fund you, you don’t live long in DC.

    Government should ALWAYS be a counterweight to corporations. They’ve lost that and no way really to get it back. There will be an upheaval of power and it won’t be pretty.

  3. euonymous says:

    Interestingly enough people on Medicare are now “healthier” than the rest of the US population. We need universal healthcare. Other countries have it and we compete with them. As a country we are carrying the weight of a 30% cost overhead of the US insurance companies on top of our healthcare costs. Medicare carries a 3% overhead, by the way. How can our companies compete with cheap foreign labor when they are paying outrageous health insurance costs. It would even the playing field internationally to have universal healthcare. In this day and age it is very clear all countries compete on a world stage where the cost of labor, overheads, taxes, and government regulation have a direct relation to the cost of goods sold. If this country wants to survive we need to bring back manufacturing jobs and provide universal healthcare.

    Then there are the issues of basic scientific research and education, both of which have been wearing rather thin in the last 20 years. We need to encourage scientific advances and educate our children to pursue a productive future. Right now we are marketing our kids into oblivion with fast food, violent video games, and mind numbing TV and movies which do not reflect the values we claim to uphold. How do citizens think their kids will grow up ethical, hard working human beings when the majority of their role models are garbage? I’m beginning to think Tipper Gore was ahead of the curve when she complained about obscene music lyrics so many years ago. That was just a snowflake on the tip of the iceberg.

  4. Rufus says:

    If large pools are supposed to be the most cost-effective, why not have one large pool of 300 million people? The doctors and the patient determine if you need the care, the Fed gov pays the medical bills and the insurance companies process all the paperwork. That way, you cut the overhead to almost nothing, the risk for insurance companies goes down to 0% and the patient and doctor is in charge of health instead of maintaining large overhead billing and floating receivables to cover cash flow needs. Everybody stays in business, but the work that everybody does best is being done by the right people. And costs go down for everybody.

  5. Paul Anater says:

    Empires don’t fall due to invasion of hostile empires and they sure as hell don’t collapse by eroding sexual mores. They collapse upon themselves when the haves game the system to the point an economy can no longer grow. Instead, it stagnates and implodes like a black hole. Welcome to the event horizon gang.

  6. Rufus says:

    Way back when everyone thought the Soviets were going to bomb us, I used to joke that all they needed to do was invest in McDonalds, schools and banks. That way, they could keep us fat, dumb and broke and we would defeat ourselves. The joke is no longer funny.