The politicians used to say “It’s the Economy (Stupid).” Now, Business owners are saying “It’s the high Taxes (Stupid)!”
The formula is really quite simple:
Increase taxes = increased costs = increased prices = decreased business = decreased jobs.
Decreased taxes = decreased costs = decreased prices = increased business = increased jobs.
Therefore, it should be obvious to the president and his advisors that if they want more jobs, they need to decrease taxes on the people who produce the jobs.
He apparently is willing to consider that, but stubbornly wants to limit it to those making $250,000 or less. That probably sounds reasonable to most people. However, what he and “they” don’t understand is that if a businessman is fortunate enough to “make” $250,000, very little is left for him to live on after he pays his taxes and, typically, a bank loan from those funds.
For example, assume a businessman or woman borrows $1 million for a business to employ 20 people. First, he would probably need to have saved at least $200,000 to invest in the business in order to get a $1 million loan. So he has $1,200,000 invested in the business. But now he must make enough money from the business to pay back the bank loan and interest. Assuming the loan is at 6 percent, and he has 10 years to pay back the bank, he has to make $60,000 just to pay the bank interest, plus another $100,000 to pay the bank loan principal. If he is successful and makes $260,000 from the business, he pays the bank $60,000 in interest, leaving him $200,000 in taxable income. He pays income taxes to the U.S. government of approximately $56,000, leaving him $144,000. From that, he has to pay the bank $100,000 principal on the loan, leaving him $44,000 to live on. He certainly is not a rich man, all due respect to the President.
However, under Obama’s proposed plan, it gets worse. If someone is successful, grows their business and hires more people, he wants their tax rate to increase from 35 percent to 39.6 percent, for a 13.1 percent increase in their tax rate. This certainly does not encourage people to grow their businesses and hire people. In fact, it does the opposite and also weakens businesses ability to borrow money.
The fact is the president can’t increase taxes on the people who create 85 percent of the jobs in America and then wonder why they don’t invest more and hire more people. It causes the opposite reaction, which is a big reason why the economy is stifled.
David Eller, Publisher