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?