Rich People Things: Understanding How Obama Is Not Robbing The Rich For His Scary Social Agenda
Be vigilant, America—your entrepreneurs are on the hook for bigger tax payments! That was the plain moral of an addled page one dispatch from this morning's Washington Post. The bulk of the piece, by Lori Montgomery and V. Dion Hayes, plies the heart-wrenching tale of one Gail Johnson, who operates a multistate chain of preschools out of Richmond, Virginia, and as the possessor of $500,000-plus annual income, faces the prospect of a 19 percent increase in her tax liability, from $120,000 to $143,000.
Never mind that Johnson's resourceful accountant, who has supplied these estimates, has her down for $90,000 in annual deductions—or indeed, that he avers that his client "is unlikely to owe any federal taxes this year due to accounting changes that confer a one-time benefit"—a detail that Montgomery and Hayes leave until, oh, the 20th paragraph of the piece to relate.
If those deductions get capped at 28 percent, Johnson will lose $10,000 off her itemized deductions, and the marginal regular increase of 13 percent goes through, well, that's another 13 grand right there.
And wouldn't you know it, Johnson's plight is the canary in the coal mine—or rather, the spilled ink in the accounting suites—for the nation's "3 million high-earning families and the nation's business," which are the only "two sources of funding for [President Obama's] ambitious social agenda."
Well, that can't be right! Surely there are some business lobbyists who can explain the injustice of such arrangements. "We're going to be a permanent target, and we understand that," says Catherine Schultz, the vice president for tax policy at the National Foreign Trade Council. "The way they see it, corporations don't vote."
"They're desperate for revenue," says an equally haunted R. Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce. "And therein lies the concern of the broader business community."
Of course, what the White House has really done is to let the top-heavy tax cuts of the Bush years expire, and upper-bracket rates return to the marginal levels of the Clinton era—you remember, that dark time when small business owners roamed the streets in packs, foraging for food. And as Montgomery and Hayes are themselves forced to concede, the nonpartisan Joint Committee on Taxation has found that that projected hikes in small-businesses taxes will affect some 3 percent—or 750,000—of the employers classed as small businesses.
What's more, the authors also note in passing that the past generation's worth of tax cuts have created absurdly lavish benefits for the nation's most fortunate taxpayers—an after-tax increase in the incomes of the nation's top 1 percent earners of $863,000, or more than 250 percent, compared to a paltry $9,200, or 21 percent, for the chumps in the middle reaches of yon socio-economic hierarchy.
The funny thing about today's poignant Post alarum is that you hear precisely nothing from anyone from this far vaster swath of taxpayers—let alone anyone in the woeful lowest quintiles—even though they are all receiving tax cuts under the Obama plan. One could describe those cuts—and even that sinister sounding "ambitious social agenda" issuing from the Oval Office—as measures of simple fairness, and quite possibly stimulants to the flailing economy into the bargain. In Montgomery and Hayes' account, these notions rate just one rueful dependent clause mention—dismissing it as a "politically popular" campaign pledge.
Nor do our authors supply the basic background for their embattled tax heroine's reasoning in reporting her business income on a personal return in the first place—she is able to incur lower tax liabilities by circumventing higher corporate tax rates.
But such considerations simply don't exist in the gilded terrarium known as the official Washington debate on taxation. No, the only conceivable point of departure in such discussions is the zero-sum notion that small businesses generate the majority of the nation's job, and if you raise marginal rates on even 3 percent of those enterprises, well, you can just kiss your cherished little plans for economic recovery goodbye. Cue the dour prophecy of Hawkeye scold Charles Grassley, the ranking GOP member of the Senate Finance Committee: "Tell these business owners their taxes will go up. Odds are, they'll cut spending. They'll cancel orders for new equipment, cut health insurance for their employees, stop hiring, and lay people off."
Now, the image of small businesses as the prime source of American jobs is a myth, roughly equivalent to the long-venerated "family farm" that Grassley spends a good deal of his time propping up to make the case for repealing the estate—er, excuse me, "death"—tax. Small business hires are far more volatile and short-lived, short on pensions, benefits, and flextime—and subject to shoddy record-keeping across the board, which is why journalists and political leaders can continue to herald their fanciful role as job incubators of first resort.
More than that, though, many elements of that "ambitious social agenda" the Obama White House is so wedded to would produce tax and income benefits for smaller employers—chief among them, universal health coverage, which would drastically tamp down the greatest labor expense for all the nation's employers, large and small. But of course, in the foreshortened, perennially right-leaning DC tax debate, no one ever gets anything in return for tax dollars—that presumes, of course, that government actually does shit, other than confiscating your hard-earned wages for those damned vanity-laden ambitious social agendas.
You start conceding those points, and it's but a short step to acknowledging that big government creates jobs, extends loans (including to small-business start-ups) and even generates revenues for itself. The zero-sum number would be up, and business federations would have to resort to exclusively publishing their own PR releases—instead of getting them written up handsomely on the front page of the Washington Post.
Previously: Rich People Things: On New York Magazine.
Socialism sure is expensive.
Shorts for everyone..
I need to own a chain of preschools. Is what I'm saying.
The only tax issue that concerns me is the proposed cap on deductions for charitable contributions. Barry shouldn't use non-profit dollars to pay for the stimulus.
Also, keep your hands off my carried interest.
Hobbes, I have to disagree. Everyone makes a deal out of it, but it just gives people the right to opt out of what society had determined is important and do something else – "Forget about poor people, we must save Jefferson's latrine for posterity!" – or rich folks to, almost literally, play God solo.
As for your dismissive/borderling factually incorrect statements about small business employment: http://tinyurl.com/chaszm
The other thing that seems to get lost in all of this is that "corporate taxes" are, quite simply, reductions in gross margin. Those costs will be passed to equity holders and distributed amongst firm employees, but they will also be realized as price increases. So that's not quite a win.
The core of the issue, though, is a shift of taxation responsibility to a smaller base of Americans. While I empathize with the "plight of the common man" and agree that taxes on the middle class are high, the top 10% of wage earners pay something like 74% of all taxes. That means two things: 90% of Americans are getting a pretty good deal in terms of services on their tax bill (yay!) and 90% of Americans have extremely limited sovereignty. By concentrating funding sources, the Federal Government also forms a more intimate relationship with the nation's wealthy, surrundering more control over our political agenda to a few rich guys.
And you can minimize tax increases all you want, but they do create tradeoffs within an economy that not everyone would be comfortable with. So, you know, I guess there's that.
Not to go FASB on you, but I don't think an increase in taxes would ever count against gross margin.
And I think any attempt by a business, small or large, to increase prices on the basis of a higher tax bill would be met by a collective "get bent, we're all paying higher taxes" from its customer base.
I meant net margin. You reduce the topline figure and inevitable arrive at a lower result. As for the customer base, they deal with the consequences of profitability pressure every day. It's difficult to extrapolate the impact of a corporate tax on the price of a gallon of milk or a plasma television, so that's why this debate is so poorly informed. But either the worker gets screwed as part of cost reductions to re-inflate net margin or the customer pays more.
Or the pressure goes to the supply-side, and then you have companies like Wal*Mart running around fucking over suppliers.
As for your not-at-all dismissive rejoinder to the small business material: http://econpapers.repec.org/paper/nbrnberwo/4492.htm
But you know, I guess a cleverly manipulated Google search link does settle the question. Silly me.
I'm also a bit confused about this "sovereignty" question as a function of revenue provision. Though I also confess that I take the perhaps more naive view that when people pay in revenues for universally available government services–roads, schools and (dare to dream) health care–they can appreciate the creation of a broader social good, tradeoffs up the economic foodchain notwithstanding. But again: silly me.
My rejoinder is dismissive because you use a disputed conjecture as the basis for your argument against relief for small businesses. You chose to fill your posts with witty insults instead of a fair treatment of arguments on both sides. I understand it's an opinion piece, but your brevity weakens your argument. So, silly you.
As for the revenue function, my argument was not that we can't all enjoy the benefits of Federal projects like the highway system, defense, etc. My argument was that placing control over the funding for those projects to an increasing degree in the hands of a few grants those few an inordinate amount of control over the operations of government. Increasing taxes on the wealthy while reducing them for other classes is the path to oligarchy at best and pay-to-play at worst.
Regarding: "placing control over the funding … in the hands of a few grants those few an inordinate amount of control over the operations of government."
So, Dis, I guess you already answered question "2" in my comment below: You really are claiming the those who pay more taxes have more influence/control over government. Are you really that naive, or are you just pretending to be for the sake of this argument?
You know what buys influence in Washington, and it isn't paying taxes. I don't think the wealthy folks who succeed in cutting their tax liability due to whatever loopholes/deductions/dodges they find suddenly lose their power and influence inside the beltway as a result.
No, really, I'm curious about how this sovereignty/pay-to-play mechanism works. (I'm happy to stipulate for argument's sake that I am, in fact, silly.) Because if taxpaying from a narrower base determines economic clout in our system of government, wouldn't the time of greatest oilgarchy have been the New Deal? And wouldn't the time of greatest–and flattest–economic self-organization have been the Gilded Age, when there was no income tax, but arguably the greatest pay-to-play period in our history?
Two things:
1. Regarding: "The top 10% of wage earners pay something like 74% of all taxes." A statement like that is meaningless unless you also consider what percentage of total income is raked in by that top 10%. I'll bet it's over half. And I'll bet over half of the money earned in by the 10% is accounted for by the income of the top 1% (who make an absolutely obscene amount of money these days, even post-meltdown).The people making most of the money should logically be expected to pay most of the taxes.
2. By "sovereignty" do you mean you political influence? If so, you seem to be confusing paying taxes with spending money on campaign contributions and lobbyists. The latter type of "paying" is what buys influence in our government, not the former.
Fair enough – though for every $1 spent on things like TJ's bedpan, I would guess several more are spent on things like medical research or the arts, or even the poors.
The administration's estimate is that a cap on deductions would lower overall contributions by only 2%, and that just seems intuitively low to me.
Obama's response to the criticism of the charitable deductions modification is that there is no good reason to give a rich guy MORE of a tax benefit for the same charitable donation. $1000 would give the rich guy $360 in tax deductions while a middle-class dude would only get $280.
I was puzzled by this part of Lehmann's post:
"Nor do our authors supply the basic background for their embattled tax heroine’s reasoning in reporting her business income on a personal return in the first place—she is able to incur lower tax liabilities by circumventing higher corporate tax rates."
especially after reading the article, including this section:
"Though certain very large companies must organize as separate entities that are taxed twice — on profits and shareholder dividends — most smaller businesses opt to be taxed only once by reporting their profits on the personal tax returns of their shareholders."
WTF? I'm not a fan of Washington Post business reporters but didn't they nail this? And didn't they end their piece quoting a small business owner who was just fine with a higher tax bill?
Sorry for any confusion there. I made the point re. the individual income question as it pertained to Johnson's case specifically–not the "most small businesses" as quoted by the Post reporters. Also, the Post reporters greatly confuse matters by writing early on that "Johnson, with her company, falls into both categories"–ie, she's simultaneously a high-earner and one of the nation's businesses, strongly suggesting that she's an innocent victim of unfortunate IRS classifications rather than someone who chose to file as an individual for tax benefits.
I see what you meant. They also failed to mention all the "business expenses" that no doubt are part of that $90k deduction, including a lot of her food, clothes and travel expenses. That's essentially tax-free income, amirite?
On a broader point, I wonder if this article is a good example of how the generally liberal Post will bend over backwards to appear non-partisan, thereby producing bad copy, unchallenged right-wing talking points or a hash of both? I remember during the Clinton years that the Post was one of his harshest critics. Not because of any objectivity but rather to defend their turf as the paper of record in Washington.
The Post has always leaned rightward in economic matters–I think comes in part from its publisher's outlook, and in part from the role that many metro dailies play in boosting local business interests, more than from any conscious overcorrection of its liberal outlook in other matters. It also has a history of spirited labor conflicts with its Guild chapter, for whatever weight you might want to give that.
Small businesses need to pay more taxes. Especially blogs that are run out of people's living room.
+2 for WestVillager. Second time today you've induced a chuckle.
I'm gonna start up my own small business, selling the world's smallest violins. I expect business to soar.
I'll take a dozen.
If I am a small business owner who actually has enough cash flow to take a 250,000+ salary (meaning I am part of a teeny-tiny minority of business owners), then I can easily avoid paying additional taxes by investing in my business rather than sucking out the cash for my salary. Truth is, the vast majority of small business owners don't pay themselves huge salaries. They take modest salaries and pour profits back into the business. They buy new tools or equipment. They hire more salespeople. They expand their facilities. There are a thousand things they choose to do that grow their businesses, help the economy, and reduce their tax bills. People who ignore that reality are people who have no clue about how most small businesses operate.
"The way they see it, corporations don’t vote."
Well, this is true, and fair. Corporations have been left out in the cold, looking in, without any sort of political influence, for far too long. Shame. I blame Obama.
Well all I can say is that, as a small business owner, I'm just thrilled Obama's going to be spending even more of my tax money to continue the bank, insurance and car company bailouts. But at least the recipients of my taxes will have their taxes raised too so maybe eventually the money will trickle down to the government.
"More than that, though, many elements of that “ambitious social agenda†the Obama White House is so wedded to would produce tax and income benefits for smaller employers—chief among them, universal health coverage, which would drastically tamp down the greatest labor expense for all the nation’s employers, large and small."
Actually, it looks like that's going to end up coming out of my pocket as well.
http://www.nytimes.com/2009/03/15/us/politics/15health.html
"Nor do our authors supply the basic background for their embattled tax heroine’s reasoning in reporting her business income on a personal return in the first place—she is able to incur lower tax liabilities by circumventing higher corporate tax rates."
After paying and matching FICA for her salary, she would have been better off leaving it in the business. The federal tax rate for her bracket is 35%, the corporate rate is 34%. So I doubt that's her reason.
"Tell these business owners their taxes will go up. Odds are, they’ll cut spending. They’ll cancel orders for new equipment, cut health insurance for their employees, stop hiring, and lay people off.â€
It's obvious Mr. Lehmann has never run a business because this is exactly what happens when costs go up. He's never had to cut that >$50,000 check at the end of a year of running a business he's built up from nothing only to see the money given to criminals and failed companies but hey maybe I'm just being greedy.