DeMint: The Richest 0.7 Percent of the Population is “Lots of People”
The right-wing is flinging smokescreen rhetoric about income taxes and small businesses so quickly that it’s difficult to keep track of what they’re saying. But the important things to recall are that very few people find themselves in the top two tax brackets, and that though some of these people are small businessmen they’re paying taxes on net income. These are brackets for a small number of unusually prosperous people. For example, here’s Jim Demint:
It looks like he’s gonna try to get a lot of that revenue from raising payroll taxes on upper income and that sounds good but basically that affects small businesses and their ability to hire people. So I just think it shows a lack of understanding of the private sector. A lot of people make — who are reporting a quarter million dollars — you know, I’ve done that before in my small business, and I was actually taking home like 50 or 40.
In fact, about 0.7 percent of households file in the top two brackets:
Meanwhile, I don’t know why DeMint thinks people who are only taking home $40k or $50k would be filing as people who earn $250,000. I think he wants people to think that the government is taxing gross business receipts, so that if I spend $230,000 on my business to earn $300,000 in revenue, that I’m taxed on all $300,000. But that’s not how it works at all. You deduct business expenses and pay taxes on your net income. Any small businessman who’s earning a middle class income isn’t paying in the top two brackets, just as any salaried employee who’s earning a middle class income isn’t paying in the top two brackets.
78 Responses to “DeMint: The Richest 0.7 Percent of the Population is “Lots of People””
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February 25th, 2009 at 6:04 pm
I’d like to see businesses given tax incentives for paying their employees more.
February 25th, 2009 at 6:05 pm
As far as tax cuts for the top 0.7 percent go—screw em. They’ve had their ride on the gravy train, now it’s over.
February 25th, 2009 at 6:07 pm
There’s nobody earning $250,000 who’s taking home only $40-$50,000 annually. Nobody.
If you find this happening to you, you are being robbed. Plain and simple.
February 25th, 2009 at 6:21 pm
So, Demint is confessing that he’s as stupid a businessman as he is a politician? That’s sort of refreshing. He might want to open up about having difficulty reading books that are ranked on a higher than 7th grade level, and flunking algebra. Go for it! “You know, I’m so dumb I…” The thrust of this is that he should get a pity taz, I suppose.
I think the GOP meme – we are stupider than they are – is something they should continue to chew on.
February 25th, 2009 at 6:26 pm
He is trying to lie and confuse people. He knows the real facts, but they do not help his cause. So, he lies.
February 25th, 2009 at 6:31 pm
Matt knowledge of small businesses is embarrassing. Yes corporate taxes are on net income after you take a salary (usually a small one). But net income is not the same as cash flows. You may be earning 150,000$ after tax profit but have zero cash. That is why he said he said take home pay. He might also (due to cash flow issues common with small businesses) forgo all or a portion of his salary.
The point is small business thanks to taxes may not be taking home very much money and the government does little to help.
February 25th, 2009 at 6:32 pm
Matt,
What’s your problem with DeMint? He’s not saying that “people who are only taking home $40k or $50k would be filing as people who earn $250,000″ under the Bush Administration tax code. Listn to what he says: when DeMint was earning $300,000, how much was he being taxed on under the current rules? $50,000, that’s how much. Obviously, $50,000 is a lot of money to be taxed on, but it’s that not bad when your business earns $300,000 like DeMint’s did.
That will all change under the Obama tax program. People will be paying $300,000 worth of taxes on their $50,000 in take-home pay. Which is why Obama’s plan is so unfair. It would be one thing if he was only going to increase rich people’s taxes, but Obama is gonna take hard-working, middle-class people earning $50,000 a year, label them “rich,” then tax them on $300,000 they don’t even get to keep.
You know what they call that in Europse? Socialism. I’m with DeMint. Obama’s plan stinks.
- O3
February 25th, 2009 at 6:32 pm
Weird. It’s as if prominent members of the Republican Party are willing to lie, mislead, or state falsehood they are too uninformed to realize are such, in order to protect the wealth of the extremely, bizarrely rich, an exceeding tiny part of the population, at the expense of everyone else. But any party that did that on a regular basis would never be allowed to get anywhere near the reins of power in a democracy.
This cries out for explanation.
February 25th, 2009 at 6:41 pm
My prof has a really good quote to explain everyone’s confusion over net income and how much you take home. “Revenue is vanity, net income is sanity, and cash flows is reality.”
I wouldn’t be so kind to net income especially after what we’ve seen in the last couple of years but my point is net income (what you are taxed on) isn’t what you take home this year. For all we know he could have signed a contract to get paid in 2025 for services provided today.
February 25th, 2009 at 6:43 pm
Wait — wasn’t this the basic scenario of Not-Joe the Not-Plumber, who said he was going to / was thinking about / one time saw a TV show about buying his business which pulled down $250K but Barack Obama and Nancy Pelosi were going to steal all his hard-earned money to pay for field mice to gay marry — but then it turned out he made like $30K as an unlicensed plumber’s assistant who didn’t pay his taxes anyway?
Is this all about NJTNP?
February 25th, 2009 at 6:47 pm
Matt knowledge of small businesses is embarrassing. Yes corporate taxes are on net income after you take a salary (usually a small one). But net income is not the same as cash flows. You may be earning 150,000$ after tax profit but have zero cash. That is why he said he said take home pay.
Hell, by those standards I had only a couple thousand dollars in “take home pay” last year after spending the rest of my after tax income on expenses. Damn cash flow.
February 25th, 2009 at 6:52 pm
the GOP is on auto-flail mode. just spit out whatever nonsense seems to fit the topic at hand. whatever it takes to get another couple dozen rubes to call their congressman’s office and complain. doesn’t matter that it’s nonsense, it’ll show up as Ordinary People Are Angry in the logs.
February 25th, 2009 at 6:52 pm
@ 9: many small businesses at the sole prop level are cash-basis taxpayers, meaning that they do not pay income tax on unearned revenue. I am one such person. Yes, cash flow is important, but if you have zero cash all the time, you’re doing something wrong/not using credit properly. Frankly your knowledge doesn’t seem to exceed Matt’s.
@ 7: what the hell are you talking about? Did you not read Matt’s post? What part of the plan are you talking about?
The caller mentions “payroll taxes”, which are capped around $94,000 of income. So if you’re complaining about paying more if the cap goes up, you have an employee that makes more than 90K per year. You are not what I would think of when I think of small business at that point.
I know that lamenting about taxes is like talking about the weather, but at least people know what rain and snow look like.
February 25th, 2009 at 6:54 pm
i’d like to see your data. because my own situation (S-corp, 12 years running) is that i have always spent more on accountant bills than i have on “business” taxes.
February 25th, 2009 at 7:01 pm
Cleek, there’s no data there. He’s an Econ student with unimaginative professors and a head full of their lines.
February 25th, 2009 at 7:01 pm
This is like all the “family farms” worth $5 million that are going to be broken up in order to pay “death taxes”. At some point, you just have to shake your head at these guys…
February 25th, 2009 at 7:02 pm
“The caller mentions “payroll taxes”, which are capped around $94,000 of income.”
Bzzt! The Social Security part of payroll taxes is capped at $106k; the Medicare part is completely uncapped.
February 25th, 2009 at 7:05 pm
Fred,
That makes my point stronger, doesn’t it? I mean if the cap is already higher, than you have to wait until you pay someone $106K until you can complain about the cap being raised. Sound like many small business to you?
Medicare is at 1.45%, or $145 for every $10,000 of additional paid income. Somehow I think that capitalism will survive.
February 25th, 2009 at 7:08 pm
I’m a small businessman (4-person tech consultancy partnership) who in the top income bracket. And while I’m sympathetic to the arguments being made, I can attest that it’s quite possible to have a high net income and still a much lower take-home pay.
In our case, this happens because our company makes a point of putting a substantial percentage of our profit into a rainy-day fund so we don’t have to fire all of our employees during the next dry spell. As Mike notes, this is a bit unorthodox: the standard approach is to keep a small reserve, then borrow when you need it. Unfortunately that approach works only works if you have easy access to credit. Hit a period like, say, the past six months— you’re dead (throw a rock and you’ll hit eight bankrupt companies that died this way).
In any case, it would be nice if there was a way to put aside profit in an account reserved exclusively for the business (withdrawing this money for non-business expenses would trigger immediate taxation). This would lower my tax rate so it corresponds to the money I actually take home, and it would make it a whole lot easier for us to build up a cash reserve and thus keep our business going when times get rough. I imagine there could be some mechanisms to prevent me from using this as a loophole to unfairly reduce my tax rate.
February 25th, 2009 at 7:08 pm
I wouldn’t be so kind to net income especially after what we’ve seen in the last couple of years but my point is net income (what you are taxed on) isn’t what you take home this year. For all we know he could have signed a contract to get paid in 2025 for services provided today.
OK, Gordon Gekko, I’m confused. Please name me one example of a “small business” where the above-quoted example might be applicable.
February 25th, 2009 at 7:09 pm
Is owenz being deliberately obtuse? That is exactly what does NOT happen.
February 25th, 2009 at 7:12 pm
“That makes my point stronger, doesn’t it?”
Not really, considering how fast the cap has been rising. It was at about $66k only ten years ago. It will assuredly keep climbing, until the Dems break down and raise the rate too, to deal with the “non issue” that is Social Security’s finances.
“Medicare is at 1.45%”
That’s half of it, but consider the case of sole proprietors: since they are considered to be both employee and employer, they have to pay that twice. Not to mention paying both halves of the Social Security tax up to $106k.
February 25th, 2009 at 7:13 pm
The Joe the Plumberization of the Republican Party continues apace.
February 25th, 2009 at 7:14 pm
The right-wing is flinging smokescreen rhetoric
Oh, the danger of mixing metaphors! Let’s call it what it is: they’re flinging shit like, um, chimps on Xanax.
February 25th, 2009 at 7:19 pm
People will be paying $300,000 worth of taxes on their $50,000 in take-home pay.
No, they won’t. Payroll taxes are on PAYROLL, not receipts. That’s why they’re called payroll taxes.
Anyhoo, it looks like we are all, finally, at long last, in agreement that payroll taxes are, in fact, taxes, and these threads will no longer be subject to moronic yammerings about Barack Obama giving tax breaks to, ahem, “People who don’t pay taxes.” Right? Right?
February 25th, 2009 at 7:20 pm
In any case, it would be nice if there was a way to put aside profit in an account reserved exclusively for the business (withdrawing this money for non-business expenses would trigger immediate taxation).
I’m really no expert, but it sounds like you’re suggesting that any profit your company designates as a cash reserve be not taxed. If I understand your proposal, the obvious problem of this is that lots of companies won’t need to pay any tax at all—they’ll just put all their profit in such tax-free accounts until it can be used for some deductible purpose. Or maybe I’m not getting it.
February 25th, 2009 at 7:41 pm
Also it is only the money that is in those brackets that taxed more. You could be making 300000 and as a percentage of or income the tax increase is pretty small.
February 25th, 2009 at 7:50 pm
Why doesn’t that tax policy center table add up to 100% in any given year?
February 25th, 2009 at 7:50 pm
He’s an Econ student
If his professor is explaining things like cash flow and net income, he’s more likely a business student or accounting student.
it would be nice if there was a way to put aside profit in an account reserved exclusively for the business (withdrawing this money for non-business expenses would trigger immediate taxation).
Hey, it would be nice if my rainy-day fund for my daily expenses were tax-free, too!
February 25th, 2009 at 7:54 pm
Forgive me for being dense, but I don’t own a small business and so I do not know how this part of the tax law works.
Why isn’t the business taxed separately? Why is the tax rate on your personal income going up because of money that is being saved for the business? It seems to me that the business should be taxed for its profits at its rate, and you should be taxed for what you give to yourself as an employee at the appropriate rate.
If the law doesn’t work that way (and from your situation, I am assuming it doesn’t), what is the reason for that?
February 25th, 2009 at 7:54 pm
Never mind, that last row is not the total, it’s the % that are in the less than 16% bracket
February 25th, 2009 at 7:58 pm
Wow. I’m totally confused here. I have run a number of small businesses. A business only gets taxed on profit. If the business makes $300,000 profit (that’s income minus expenses), of course it pays tax on that number. Since most businesses make 10% or less profit on sales, that means his sales are over $3 million.
Now, one of the expenses is the owner’s salary. If he paid himself $100,000, he pays personal income tax on that income, just like all of us do. But, that was an expense to the company, so there is no double tax.
That said, there is no question that the government is a real burden to small business. Most business-oriented laws are voted in by congress persons who are “owned” by big business. They tend to discriminate against small businesses, since big business people don’t like them.
As someone above said, cash flow is the real killer. It is possible to have a profitable business (and to have to pay taxes on that profit), but to have no cash. More small businesses die because of cash flow problems than because of profit problems. That is generally, but not always, due to bad management.
February 25th, 2009 at 8:00 pm
Mike,
Am I talking about sole proprietorship? No. They are a completely different type of business with entirely different set of issues. If this was a sole proprietorship then you would be right.
My point is what this DeMint guy said is entirely possible and actually very common (to a much lesser extent) for new businesses. Cash flows are a big deal especially when you are starting out and for Matt to completely ignore and misrepresent what this guy said while at the same time basically calling him an idiot is unfair. It is also a lie.
I think it is only fair, given the George Will scandal, for Matt to offer a correction.
February 25th, 2009 at 8:01 pm
That said, there is no question that the government is a real burden to small business. Most business-oriented laws are voted in by congress persons who are “owned” by big business. They tend to discriminate against small businesses, since big business people don’t like them.
I’m not agreeing or disagreeing, but it would be great if you provided specific examples rather than just assertions.
February 25th, 2009 at 8:05 pm
The 0.7% percent figure seems to be at odds, or is at least a significant decrease from the figures listed in this table on the same site:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=380&Topic2id=30&Topic3id=31
(which are from tax year 2006)
That one has 3.5 million returns in the top two brackets (2.5 million in 33& 1 million in 35) out of 106 million total returns, so about 3.3%
February 25th, 2009 at 8:09 pm
My point is what this DeMint guy said is entirely possible and actually very common (to a much lesser extent) for new businesses. Cash flows are a big deal especially when you are starting out…
Sure. What exactly does the fact that many startup businesses struggle to maintain a steady cash flow have to do with income tax rates? Please advise.
February 25th, 2009 at 8:12 pm
Gross vs. net income was the Joe the Plumber obfuscation. Joe from Lowell mentions yo plumber, but I don’t think he remembers. Do Matt’s readers, uh, read the papers?
February 25th, 2009 at 8:13 pm
James Gary,
How many small business do you know that buy expensive long term assets? Nearly all. And these long term assets are amortized over several years but the cost aren’t (necessarily). Hence high net income and no money. Of course you will get this money eventually but the taxes are due today.
Tyro,
Unfortunately I will have a finance degree (totally ashamed) but in my double specialist program I will also have a minor in math. In hindsight I should have specialized just in math.
February 25th, 2009 at 8:15 pm
James Gary,
Absolutely nothing. And I will admit this guy sort of arbitrarily adds the anecdote about his small business but it doesn’t mean what he said is wrong. And it doesn’t mean Matt has to lecture him on how corporate profits are taxed.
February 25th, 2009 at 8:16 pm
In any case, it would be nice if there was a way to put aside profit in an account reserved exclusively for the business…
Cap: there is. You’re free to put aside every penny you want to in “an account reserved exclusively for the business.” It’s just that quite rightly you have to do this with post-tax income/profits. Although IIRC with a regular “C” corporation, (as opposed to an “S”) the rate is lower for most small businesses than it is for individuals, so it likely makes sense to keep the money in house. After a certain point of accumulation, the IRS does force you to disburse profits or pay a penalty.
February 25th, 2009 at 8:16 pm
OK, let’s humor gordon gecko here. Let’s say I run a small software company that’s doing very well and has profits of $500,000 in 2009, but that my corporation has only a very small amount of that money, say $8,000, in cash.
Under Obama’s plan, how much will my company owe in additional taxes and what specifically will happen to this business?
APS
February 25th, 2009 at 8:22 pm
@30: My business is incorporated as an LLC, which means that profit “passes through” to the owners — the company itself pays no tax. To pick an arbitrary example, if an LLC makes $1m profit and has 4 equal owners, each owner has to report $250k in personal income to the IRS. Note that it doesn’t matter if they actually take that money home— it could be distributed, or it could stay in the company’s bank account. (Many LLCs develop elaborate mechanisms to ensure that partners get reimbursed for the extra taxes they pay on money /not/ withdrawn from the company.)
Note that the owners have to pay both state, city, Federal self-employment taxes (the employee’s share + company’s share of payroll taxes) on that income. Payroll taxes are capped at about $90k, so they wouldn’t apply to much of our $250k example, but if that cap is every removed it means a 13%+ tax applied to every penny of the amount.
@26: Absolutely I’m suggesting that a rainy-day fund be tax-deductible if it’s used for legitimate business expenses. Currently we allow this sort of expense deduction, we just arbitrarily require that the money be spent in the same calendar year that it’s earned.
However, I’d be perfectly willing to settle for a fund that’s tax deductible only if used to pay employee salaries (owners excluded). You could prevent abuse by adding penalties for misuse, and capping it at some fraction of the yearly payroll.
Keep in mind that the current approach explicitly encourages businesses to avoid building a cash reserve. That means a high degree of dependence on credit, and a bunch of layoffs when credit isn’t available.
February 25th, 2009 at 8:28 pm
Let’s say I run a small software company that’s doing very well and has profits of $500,000 in 2009, but that my corporation has only a very small amount of that money, say $8,000, in cash.
Under Obama’s plan, how much will my company owe in additional taxes and what specifically will happen to this business?
Under Obama’s plan, your company will owe no more in taxes than under the Bush tax plan.
Obama’s plan is to increase the taxes on individuals and not on small businesses.
(1) If you have a C Corporation, the Company will be taxed at the same rate. The dividend which will be distributed to you if it is over $250,000 presuming thats your only income will be taxed at a higher rate of 3%.
(2) If you have a S Corporation or a LLC, the money will flow through to you and you will in fact be taxed at a slightly higher rate of 3%.
Now lets talk reality:
Matt is absolutely correct that there is a big difference between receipts and profits. In most businesses the profit percentage range from 2-5%. In small businesses, meaning businesses run by owners, the profit margins range around 10-20%. So for you to make 250,000 in profits, you will have to get revenues of over a million dollars at least though closer to 2 million for most small businesses.
Now if you do make over 250,000 in profits as take home, it should make no difference whether you are a small businessman or a lawyer or a doctor. If you make over 250K your taxes go up by 3%. Is that fair? Depends on whether you believe that people should pay an additional 3% for all of Obama’s plans if you make over 250K.
February 25th, 2009 at 8:32 pm
Re: “…put aside profit in an account reserved exclusively for the business (withdrawing this money for non-business expenses would trigger immediate taxation)…”
It would be simple, really. Just reduce corporate income taxes to 0, maybe up to some limit (lets argue over the line between small biz and big biz). If money is in the business, it can stay there, to be used for the business’s purposes. As soon as it is taken out of the business, for the shareholder’s personal use, tax it. Tax it a lot.
Given the choice between investing in growth or paying taxes to consume, the incentive would be to invest. Investment -> growth -> good for everyone.
February 25th, 2009 at 8:33 pm
Hey, can I get that answer? How much additional tax, in dollars, will my company pay?
Here, I’ll do it for you since I can never get a straight answer in these situations.
On my $500,000 of profit I’m going to owe an additional $7500 in taxes. A business with $500,000 in annual profits that cannot find a way to meet an additional $7500 tax burden is being run very poorly.
February 25th, 2009 at 8:39 pm
Ape Man,
Thanks. Any excuse to continue procrastinating. If Obama raises the corporate tax rate from 35-39.6% on businesses (incorporated) earning more than $250k your company earning an income of 500k would have to increase its cash flows. If it previously had cash of $8,000 it would need to raise another $15,000. So it would probably cut expenses (let’s say labour). But because expenses are a tax shield it would have to cut more than $15,000 worth of labour. It would have to cut about $25,000 worth of expenses (assuming it can keep revenues the same). Of course it could borrow money (since it will have the cash from NI later) but this is now quite expensive and especially so for small businesses.
For simplicity I assume a flat corporate tax rate.
February 25th, 2009 at 8:43 pm
Ape Man,
Didn’t see your above comment. Yah if you take into account the fact the tax rise only effects the top 250k then cut my numbers in half.
February 25th, 2009 at 8:43 pm
Being one of those liberal arts types who can’t balance a checkbook I maybe missing something, but my understanding of basic finance is that if you are using post tax income to pay for capital costs you’ve done something terribly wrong and you need to consult a better CPA immediately.
February 25th, 2009 at 8:45 pm
I forgot to add that obviously this necessitates having a pre-approved line of credit.
February 25th, 2009 at 8:57 pm
gg:
How do you get $15k, first of all? Did you forget I’m taxed on the marginal dollar? The true difference in tax burden is more like $8k (which is why I chose the $8k cash number.)
Second, can you really not think of any other way for my business that has $500k in profits to wind up with an extra eight grand at the end of the year, besides cutting labor costs?
February 25th, 2009 at 8:57 pm
DeMint knows exactly what he’s doing. Call it misleading, call it lying whatever – it’s the same dynamic as the Republican arguments against the estate tax. For every 10,000 people who are ‘outraged’ about it, there’s 1,000 people who think they’ll actually have to pay it. And for every 1000 people who think they’ll have to pay it, there’s only 1 who actually does have to pay it. It’s the boogeyman. It’s Kaiser Soze.
There continues to be confusion over the terms ‘gross’ and ‘net’. It’s not quite that simple. As far as sole proprietorships (aka J/T/Plumber) are concerned, the number we care about is somewhere between gross receipts and ‘take home pay’….
The 250k refers to AGI (Adjusted Gross Income). For sole proprietorships, business profit/loss is included in AGI(schedule C I think). Yes it’s ‘gross’ income, but the key is it’s income that is net business expenses. So if I have a plumbing business with gross receipts of 400k, and I have 250k in operating expenses, my tax bracket = $150k
And this is what always bothered me about Obama’s Joe the Plumber conversation. BHO should have said “so let me get this straight Joe, you’ve got a business where after you’ve paid all the bills, after you’ve made the payment on your two trucks, the rent on your office space, advertising costs, training costs, website, the lease on your heavy equipment, and everything else – you still wind up with over $250,000….man, sounds like plumbing is a good line of work to be in… so tell me again how paying a few more points is going to put you out of business?”
February 25th, 2009 at 8:59 pm
OK, I see you’ve since copped to the on-purpose mistake of forgetting about the whole marginal dollar thing.
But I guess what we’re driving at here is, why don’t you explicitly make the case as to why it’s crippling for a business with $500k in profits to pay an additional $8k in taxes?
February 25th, 2009 at 9:01 pm
Cap Cleaning Staff,
I’m going to give you some free advice: talk to an accountant or lawyer. You’re getting hosed by choice. You need to reconsider how your business is organized.
February 25th, 2009 at 9:20 pm
I’m going to give you some free advice: talk to an accountant or lawyer. You’re getting hosed by choice.
Right. Sounds to me like Cap Cleaning should be a “C” corporation with the owners all receiving small salaries plus whatever they can spare in the way of dividend checks. They’d likely be able to retain more cash by shifting more taxable money into lower, corporate rates.
February 25th, 2009 at 9:28 pm
Is owenz being deliberately obtuse? That is exactly what does NOT happen.
Heh heh. The fact that it’s sort of hard to tell says a lot about our Republican friends, doesn’t it?
February 25th, 2009 at 10:05 pm
DTM,
Because we need even more of an incentive for businesses to increase leverage! And even if a business does use debt to finance its assets some of them will be financed with equity (i.e the owner’s cash). So there still should be cash flow issues in most small businesses. A not-so easy solution to this problem would be to increase the already present corporate tax loop-holes that help small businesses starting out.
February 25th, 2009 at 10:39 pm
I don’t see what’s wrong with expecting starting a business or running a small business to be sometimes difficult. It’s not beanbag. Businesses (including small businesses) already get enormous subsidies from taxpayers in the form of depreciation deductions, different forms of incorporation, loss carry backs and carry forwards, etc. Tax avoidance and the lawyer and CPA class have been so effective at shielding corporate income from tax that they had to introduce the corporate AMT just to make sure corporations pay something.
Fred @22: the self employed get a deduction for the other half for AGI. I also don’t see why we couldn’t remove the cap so that Chrysler’s CEO pays it on his entire $1.8 million salary but the company keeps the cap at 106K.
February 25th, 2009 at 10:41 pm
“In small businesses, meaning businesses run by owners, the profit margins range around 10-20%.”
Really? I must be some kind of genius with a 95% profit margin. I spend about $7,000 per year on my business, and make over $150,000. I buy a computer every three years and the rest of my expenses are almost entirely software licensing and internet fees. Yes, there’s about $100 in paper and the occasional pen. Hell, last year I even bought one of those fancy 12 color white board marker sets. But I didn’t even bother writing it off. For me, nothing is amortized, it all falls under Section 179. But if you are amortizing, why wouldn’t you incorporate? And if you have employees, why would you even think about paying them through your personal income? Ever hear of a 1099? My business is somewhat unusual, I’ll admit, but there’s no reason to let yourself get taxed at 80%. At that point, you really need to get an accountant.
February 25th, 2009 at 10:54 pm
No shortage of accountants have been consulted about this. They mostly say: we should save nothing, spend everything we make and rely on short-term credit when we need it. With the caveat that banks may not actually lend us any money, given the economic situation.
Andrew: setting up a C corp is painful, and wouldn’t solve the underlying problem– we still either have to spend the money or pay taxes on it (at corporate rates in this case).
All of this talk about long term assets doesn’t really help when your business is a consultancy. We buy computers from time to time, occasionally some furniture. But nothing you could use to secure a loan.
February 25th, 2009 at 10:59 pm
DTM,
Yes a secured loan does increase leverage. Even if the debt is risk free (as a properly secured loan should be) it still increases leverage. Albeit much more desirably than other debt. Of course secured loans are probably now considered an oxymoron so that’s no longer true.
February 25th, 2009 at 11:05 pm
A broad generality I have is that most right-wing thought absolutely requires the exclusion of logic, reason, rationality, and/or factual analysis to be an effective comfort provider to the thinker. Having a belief is, to most right-wingers, sufficient to making it also absolutely and unquestionably true requiring no further investigation or substantiation. Especially if provided by an authority figure.
Whether my generality is true is determined by how effectively it matches my perceptions of reality. And most of the time it seems a perfect fit.
DeMint’s assertions seem to verify my broad generality precisely and quite effectively.
February 25th, 2009 at 11:58 pm
Why the fuck would you add perspective to a chart like that? The third dimension contributes nothing to data representation and actually makes the data less visually accurate since the perspective fucks up area representation. I know the chart in this post is trivial snark, but every fucking figure you post has at least one flaw that could be easily remedied.
Please read Tufte’s The Visual Display of Quantitative Information before dabbling in visual data representation again. Here’s a link to buy it.
February 26th, 2009 at 12:04 am
@63, Damint is spot on, but you’re liberalistic logic prevents you from seeing it.
The fact is that unless some tax cutting conservatives are brought in fast (to cut the top marginal rate to less than 30%, and to eliminate the capital gains tax), America as we know it will cease to exist, as Alan Keyes so prophetically predicted.
Marxists and redistributionists have taken over.
February 26th, 2009 at 1:17 am
He misunderstood how “under the table” works – got it backwards. Some small businesses report less than they take home by taking cash “under the table” and not reporting it. DeMint got it mixed up and he gave away cash “under the table” and reported it. Result? He reported $250K net income and only took home $40-$50K. Had he been doing this transaction correctly he would have brought home $500K and reported $250K.
February 26th, 2009 at 4:12 am
Heh heh. The fact that it’s sort of hard to tell says a lot about our Republican friends, doesn’t it?
Gotta hand it to you, Owenz. On first read, your post DID read like a deliberately clueless (and perennially outraged) Repub. I especially liked how you sneaked in the following line with a straight face.
Obviously, $50,000 is a lot of money to be taxed on, but it’s that not bad when your business earns $300,000 like DeMint’s did
February 26th, 2009 at 7:34 am
Just to inject one last bit of reality, there are zero companies that will be taxed at a higher nominal income tax rate in 2009 than they were taxed in 2000, because Obama’s plan returns the top two brackets to where they were at the end of Clinton’s term without adjusting the lower brackets.
So basically, what we’re arguing about is whether a return to Clinton’s budget policies will cripple the economy, or whether we should continue Bush’s policies.
Just in case no one realized that.
February 26th, 2009 at 8:07 am
Not sure people living in Manhattan who make $250,000 a year are “unusualy prosperous.”
But even accepting that terminology, OK. We’ll call them unusually prosperous. So how much of the federal tax burden should we demand these people shoulder? In 2006, the top one percent of earners paid about 40 percent of federal income tax collected. The top five percent of earners paid about 60 percent of federal income tax collected.
Maybe that’s not enough for progressives, but it’s not like these people are skating off tax free.
February 26th, 2009 at 8:30 am
In any case, it would be nice if there was a way to put aside profit in an account reserved exclusively for the business (withdrawing this money for non-business expenses would trigger immediate taxation).
There is. It’s called being a non-profit.
February 26th, 2009 at 8:40 am
A minor point: you probably should add the 2 AMT categories to your .7%, so that the .7% is actually 4.3%. People paying the AMT (i) tend to make a lot of money and (ii) pay more than they pay under the normal part of the tax code.
February 26th, 2009 at 9:11 am
It will be very interesting to see how the MSM treats this issue of tax hikes for $250,000+. I think it’s safe to assume that the coverage will blow. A lot of big time MSM figures, as you noted with Gregory the other day, really think that a lot of people make $250,000+. And a lot of the people who can get on the teevee and argue against taxing this bracket more are people who really do make 250,000+. So I think the MSM will do its best to confuse people into thinking their taxes are getting raised. You can see that a bit here: http://www.nytimes.com/2009/02/26/us/politics/26budget.html?_r=1&hp
Oooh. Buzzword! I’d love to see the faces of all the financiers on the train into nyc today as they read this article.
Buried in that article somewhere is the plan to increase make work pay tax credit for low/middle income earners. But who cares about that?
February 26th, 2009 at 9:13 am
Not sure people living in Manhattan who make $250,000 a year are “unusualy prosperous.”
Please, just stop. If you want to do this crap again, at least go through the archives, read the hundred or so times this argument’s been put forth, and then try and come up with some new angle on it. This “people making $250K aren’t really rich” schtick is incredibly tired.
February 26th, 2009 at 10:31 am
“Not sure people living in Manhattan who make $250,000 a year are “unusualy prosperous.””
Then we could certainly index it to the cost of living where the taxpayer lives.
Say, everyone in Omaha making over $150k gets a tax increase, and for Manhattan it’s $600k. That way the 14 middle-class families in Manhattan just trying to send their kids to a decent school don’t go bankrupt having to pay an extra $2k a year, in return for the destruction of a talking point.
February 26th, 2009 at 11:49 am
If a small business has two owners (not married to each other), the small business could have a profit of $500,000. In fact, that is the usual case isn’t it? I assume here the republicans are talking about S Corps, not C Corps, since the latter pay corporate tax rates.
February 26th, 2009 at 5:15 pm
Lord Basil:
Are you pulling my leg????
Come on, you’re justing kidding??
No, I mean really, you’re just making this up, right?
You don’t really think Alan Keyes is right on the money?
Wow!
February 26th, 2009 at 7:19 pm
Not sure people living in Manhattan who make $250,000 a year are “unusualy prosperous.”
Given that the median household income for a household in Manhattan is about $47,000, yes, I would say that someone making $250,000/yr in Manhattan is “unusually” prosperous.
February 27th, 2009 at 3:24 pm
Wow! I lived very nicely in Manhattan on just less than $50K per year in the mid-late 80s. Don’t know what planet y’all are on thinking that everyone in New York County live on the Upper West Side and have a doorman and a towncar service . . . many are real life middle class and/or working class! It is called Ft. Tryon, folks, Ft. Tryon.