I think that is very interesting.  I openly admit I don’t know a lot about this stuff, but reading this brings to mind a few thoughts.  Are there other ways for the small business owner to file?  If yes, meaning if a small business doesn’t have to be an s-corporation, and the owners income is taxed at 150,000, how does it then affect him? 

As for why, well when you are ‘middle class’, ‘lower or upper’ or in ‘poverty’ having that extra money in your pocket does make a difference.  I know personally that we have had to change our with-holdings to make ends meet, and that small change in our taxes does make a difference, so an actually change in the percentage, will make a difference to me and my family on a very real day to day level.

I also think part of the idea is to stimulate consumption.  The thought is that if people have more money in their pocket then they spend more.  Like the stimulus checks that everyone received.

That being said, I come from a different school of thought all together.  I know it would never actually happen, but I like the idea of not having an income tax at all, but rather a higher tax on purchases and consumption in general.  I think that this method would almost balance out the differences in the classes and taxes.  If we all pay the same amount of tax on purchases then it’s harder to say it’s not fair.  And those that have more money would still be contributing more through the fact that they would be purchasing larger and more things.  (I have no idea if I made that make any sense at all) I also think in general people would be happier with this than an income tax, because it feels more like a choice.

As far as your blog post, I agree with pretty much everything you said on Obama’s tax plan re: small business. Couple other points - one, his $250,000 threshold hits people differently according to where they live, i.e. if you live in Wichita, Kan., $250,000 makes you basically rich. If you live in New York or L.A., different story. I don’t know what the magic number is but I think the the threshold should be higher - if the current top rate applies to couples’ income above $372,950, maybe that’s a place to start.

Also, and this is a point made consistently by venture capitalists, long-term cap gains should be taxed at the lowest rate possible - if they’re really long-term cap gains. One year is not really long-term. I think to qualify for the lower rate (and I do think it could go up to 20 percent for the highest-income taxpayers, but as with the marginal income rates, at a higher threshold), the one-year rule should be bumped up to three, four, maybe five years. That would encourage investors to stay in for the long haul to see a startup through, rather than bail out at the lower rate after making a quick buck.

Bottom line is, taxes are going to have to go up on somebody, and soon. The government has been hemmhoraging cash faster and for a longer period than Wall Street. When the bills really start to come due over the next 10, 20, 30 years for Social Security, Medicare and all the other government obligations that have been promised, it’s not a pretty picture—we’re talking tens of trillions of dollars. Some spending cuts are going to be necessary as well, but if the administration and Congress can do it, they should start nibbling around the edges of tax reform - a nip here, a tuck there, phase some rate increases in over a period of years—on the people who can most afford it. It’s not because some people make too much money and don’t deserve it, and it should go to someone else. It’s because there’s really no other choice if our government is going to stay solvent in the long run.

That said, it’s the night before Election Day and I still haven’t decided who I’m voting for!

Interesting point, though I believe some of the intricacies of his plan do begin to address some of your concerns.  I think there’s a provision for tax credits for every new job created in America for one.  I assume it wouldn’t be enough to get those 2 additional people hired, but there are provisions to encourage domestic job growth.

In any event, I think we both agree that he’s the best choice for the country at the moment.  Perhaps once he’s actually in office, his
policies will be less influenced by his need for all the votes of people earning $25k/year or less.  It would be virtually impossible to
get the fry cook at a McDonald’s franchise to understand why they (or the country) will be better off if their boss who makes 10x what they do pays less taxes.  While your employees probably know and trust that you would put tax savings directly into the company, many small
business owners wouldn’t (or at least their staff wouldn’t trust them to).

So, are you right about the tax plan as it stands partially suppressing growth?  probably.  But--and I think we’ve all had this discussion a thousand times--your rhetorical argument assumes that the small business owner has the best possible intentions in the interest of economic and job growth.  I think the perception among the average American worker is that saving $80k for someone making $250-600k just means they’ll buy another boat or a fancier car.  The actual truth is probably somewhere in between.

There are lots of “fiscal conservatives” that own 4, 5, even 12 homes, and you don’t get that rich by squandering your profits, but you don’t
end up owning that many homes by pouring all your profits back into the company either.

Good post though--may have been better receive by us liberals on Wednesday though .

Very interesting, but I think you have omitted a few points:

1) No S corp is going to have a $450,000 profit on the books at the end of the year. It is either going to get paid out or be reinvested, so I see that as income for Joe, meaning he is really making $600,00 a year. To paint him as someone only making $150,000 and then getting shafted is a little one sided.

2) The increase on Social Security tax would never exceed 4 percent combined (emp & employee) http://www.taxfoundation.org/blog/show/23353.html. Also, that additional tax is only applied to the income OVER 250,000 (there is nothing paid betweeo 102,000 and 250,000). So that number of $67,500 you came up with is actually maxed out (assuming a total of $600,000 income by Joe) =

$600,000 - $250,000 = $350,000 (subject to new tax)
$350,000 * 0.04 (both emp & employee) = $14,000

http://www.taxfoundation.org/blog/show/23353.html
“Under current law, income up to $102,000 a year is taxed for Social Security. Obama would create a “doughnut hole” by not imposing new Social Security taxes on income between $102,000 and $250,000. His aides said income exceeding $250,000 would be taxed at a rate of 2 percent to 4 percent, rather than the 6 percent tax that people pay toward Social Security on income below the $102,000 cutoff, which is matched by their employer’s paying a 6 percent tax. Employers would probably pay an additional tax, but the total tax paid by both employee and employer would not exceed 4 percent of the amount of income earned over $250,000.”

3) That puts our total increase at a max of $16,154 + 14,000 = $30,154, not $83,654 . So if Joe wants to hire people, that money would have gone toward that end and would not have been left as profit to be taxed in the first place, so I don’t really buy the argument that this $30,154 is going effect Joe’s ability to hire. Perhaps if Joe doesn’t want to take the hit in his income, he might take a greater percentage out of the business to maintain his $600,000 salary, but that is a decison Joe can make to grow his business or cash more out of his company.

4) As for more macroeconomic questions of histocial marginal tax rate increases and their effect on the economy, I think you could probably find evidence to support any conclusion you want to draw. But I would point out that we are in a somewhat unique situation with “Stagflation”, so I am fairly confident that noone knows what the right answer is.

My 2 cents.

As a small business owner, this was my primary concern.  The average American doesn’t understand exactly what you mentioned.  If my business makes $200,000 a year after my salary of $100,000, I still pay taxes on the full $300,000 even though I leave that $200,000 invested in the business.

Government is the biggest obstacle for me as a small business owner.  Revolution anyone?

For My 2 Cents,

What do you do for a living? You should open a small business. I support you! Probably literally! By working 12-14 hours a day and providing a living for 16 employees complete with health care and retirement! You are right though, I should contribute an additional $60k a year of my $400,000 dollar salary to all of the welfare recipients of Obamas tax plan. Maybe I will just retire and move to Mexico and start a new business.

What fool would ever have sole proprietorship that earns $600,000.  I learned that hard lesson years ago and am still paying for it.  No, any businessman worth his or her salt would incorporate and take advantage of the tax law like the ‘real’ wealthy do.  I cannot feel sorry for stupidity.

Get Real!!