Entrepreneurial

Tax cuts for the rich bad for small business

By Guest Contributor
December 14, 2010

– Lew Prince is managing partner of Vintage Vinyl, an independent music store in St. Louis. He is also a member of Business for Shared Prosperity, which has circulated a petition against extending the Bush-era tax cuts. The views expressed are his own. –

As a small business owner for more than 30 years, I have to be reality based.

I budget and make decisions that consider both short- and long-term realities. My company wouldn’t last a week if we kept repeating mistakes.

The Bush tax cuts for the richest Americans were a big mistake. We should let them expire, not repeat the mistake by extending them. It’s an illusion that it will be easier to end them after a two-year extension.

High-end tax cuts haven’t trickled down as job creation. President Bush had the worst job creation record since 1939. The only thing trickling down was economic meltdown, foreclosures, unemployment, business closures and budget cuts.

Contrary to myth, my tax rate doesn’t affect hiring. If I think I can do more business, I hire more workers. The costs of finding, hiring and paying new employees are business expenses. They’re deducted up-front from our taxable income.

We won’t heal our economy by repeating the toxic policies that are harming it.

Fewer than 3 percent of taxpayers with any business income have yearly incomes above $250,000 (couples) or $200,000 (individuals). Most high-enders aren’t who you think of as small business owners. They include hedge fund managers, CEOs getting paid to sit on the boards of their buddies’ corporations and partners in wealthy real estate or law firms. These are the people whining that eliminating tax cuts will kill jobs at small businesses. What a crock.

Small business owners don’t need more tax cuts. We need more customers. Rewarding the quick-buck artists who trashed our economy and ripped off homeowners, ordinary investors and pension funds by selling worthless mortgages and derivatives is wrong. They were bailed out and didn’t even have the decency to thank us. Instead, they poured their taxpayer bailouts and profits into obscene bonuses, more speculation and lobbying. They’ll do the same with their tax-cut windfall.

My company’s success or failure depends on the economic health of our 24 employees, our customers, our community, our state and our country. If Congress wants to help my company create jobs, it should support policies that strengthen our economic foundation and boost broad-based consumer income and spending, which would mean more people walking into my store – and into the neighborhood restaurant, realtor, grocery, contractor, auto dealer and other businesses that make up our economy.

We shouldn’t borrow billions more dollars from China and Saudi Arabia to give to the wealthy. Instead the wealthy should pay their fair share. We need adequate tax revenue to invest in our economy. More tax cuts at the top won’t create jobs. But we will create jobs and strengthen our economy by rebuilding our crumbling roads, bridges, public transit, levees and water and gas pipelines. We will save and create jobs by investing in education and clean energy research and manufacturing now growing much more rapidly in other countries.

If we give more tax cuts to the wealthy, we’ll see many more cutbacks in what really strengthens our economy.

Read Kelly Phillips Erb’s post: “Extending tax cuts eliminates uncertainty“.

Comments
4 comments so far | RSS Comments RSS

excellent post! its so frustrating that advocates of extending tax cuts for all income levels get away with couching their argument as a stoic defense of the beloved small business owner. there’s also tremendous confusion about very fundamental income tax structure; i recently had an argument with someone who INSISTED that (i) small businesses owners are taxed on gross revenue, and (ii) that a small business owner grossing more than the threshold – 200,000/250,000 – would have that entire amount taxed at the higher rate. Based on these two incorrect assumptions, he calculated that a small business owner grossing $300,000 would see his tax obligation go up by $10,000 if the bush tax cuts expire.

i especially like your point about hiring. i have never owned a small business, but that always seemed like an intiutive point: you hire an employee because you think he/she can add value to your business, not because you have ‘extra’ money in your pocket.

Posted by JohnEsq13 | Report as abusive
 

You make good points about small business owners’ motivations to hire; thus, you contend that lower tax rates for “the richest Americans” will not translate into higher employment at the small business level. But, you fail to explain why higher tax rates (letting Bush era tax cuts expire) for “the richest Americans” will succeed in doing so – If lower taxes rates won’t boost small businesses and employment, certainly higher tax rates won’t either.
Further, you imply that the money from higher tax rates should be used to stimulate the economy by rebuilding infrastructure and funding renewable energy alternatives – this I FULLY agree with.
But, looking back upon recent history, the stimulus programs enacted by the government have not only been delivered in the wrong manner, they were enacted when Bush era tax cuts were still in place. This shows that (i) The feds will spend money when and where they see fit, regardless of whether or not we can afford it (ii) The government has not delivered effective stimulus programs such as rebuilding infrastructure, a smart grid, and renewable energy initiatives.
Given these two realities, what makes you assume the government will use increased tax revenues to “do the right thing”? I think the government over steps its’ bounds by assuming the job of (over)regulating business/industry and redistributing wealth – and perhaps more importantly, they have shown that they aren’t very good at doing either.
Lastly, you cite the familiar rhetoric that the “banksters” and Wall Street CEO’s dooped Americans out of their money, their homes, and the American dream. Unfortunately, such propaganda is a widely held belief. The truth is that the primary responsibility of this mess falls on the government itself. The government, through quasi-government agencies, created an artificial market for home loans that never would have been made otherwise. The government kept rates too low for too long and told mortgage brokers that they would buy all the loans they could write, so the brokers wrote them. This artificially inflated home prices which allowed people to speculate by “flipping that house” and taking lines of credit on their home – essentially credit cards tied to a house. This led to further speculation by Wall Street on MBS and derivatives thereof. It also funded spending and consumerism here in America on a level that never would have otherwise been possible.
So the truth is that the government, both Dems and Reps, put their nose where it didn’t belong, created an artificially inflated market that basically EVERYONE participated in, and then is using this meltdown fiasco to blame the banks and Wall Street to vie for even greater control and regulation over the industry; And your telling me to put more money and control in the hands of the government? I think not.
Greed on Wall Street? I see greed on Capitol Hill
Would I vote to extend the Bush era tax cuts? No, I would abolish the income tax and enact a sales tax that promotes saving and taxes spending. I would then proceed to abolish the Fed, the IRS, Dept of Energy, Dept of Education, entitlement programs, legalize and tax drugs, prostitution, online gaming….the list goes on. To me, this boils down to the philosophical debate between what Abraham Lincoln coined as Liberty and Tyranny. The government needs to get its greedy fingers out of the business of the private sector and private individuals and focus on regulating safety, national security, and subsidizing education.
I apologize for my utter lack of brevity.

Posted by jaham | Report as abusive
 

Excellent post – from a real “small business”.

One thing being played down in the current arguments is that the tax cuts will be paid for by decreasing Social Security benefits for by the lowest paid workers in our economy, and not at all by our Congressmen, our President, or big investors (all are excluded from social security current by law).

The small, one time reduction in Employment taxes is of no benefit to small business or employees; it’s just window dressing, and no “compromise” at all, and was added only to make the program seem more evenly balanced.

The only thing that helps small business is letting the Bush tax cuts expire now and not debasing our currently more.

Posted by SpudM | Report as abusive
 

I love your spirit and logic.

Unfortunately Free Trade, lobbyists and corruption will crush your small business before your children have a chance to pick it up.

You will be saddled with heavy heavy taxes in 2 years while the wise rich will have moved corporate head offices and money laundering off – shore. They now have a 2 year extension to do this and have more choice with free trade.

Posted by Butch_from_PA | Report as abusive
 

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