Publisher’s Perspective: Obama wants more jobs?

Posted on 01 December 2011 by LeslieM

He needs to decrease taxes … for everyone!

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:

Increased 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 advisers 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 less than $1,000,000. 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” $1,000,000, very little may be 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 $5,000,000 for a business to employ 100 people. First, he would probably need to have saved at least $1,000,000 to invest in the business in order to get a $5,000,000 loan. So he has $6,000,000 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 $300,000 just to pay the bank interest, plus another $500,000 to pay the bank loan principal. If he is successful and “makes” $1,300,000 from the business, he pays the bank $300,000 in interest leaving him $1,000,000 in taxable income. He pays income taxes to the U.S. government of approximately $330,000, leaving him $670,000. From that, he has to pay the bank $500,000 principal on the loan, leaving him $170,000 to live on. To some, he may look rich. However, in order to get that big loan, he probably had to sign away everything he owns, including his home. If business slows down and profits are squeezed, he may lose everything he owns to the bank, including his home. That actually happened to a good friend of mine recently.

However, under Obama’s current plan, it gets worse. If someone grows their business and hires more people, their tax rate will increase from 35 percent to 39.6 percent, for a 13.1 percent increase in tax rate, which equates to a $46,000 tax increase, reducing his net income to $124,000. The employer has taken a lot of risk to try to make that money, and the risk goes up as the tax rate increases, which also decreases the amount of money the employer can pay their employees.

Thus … increased taxes increase costs, which increases prices, which decreases business and decreases jobs.

Whereas … decreased taxes decrease costs, which decreases prices, which increases business and increases jobs.

Bottom line is you can’t increase, or threaten to increase, taxes on the people who create 90 percent of the jobs in America and then wonder why they don’t go out and hire more people. No wonder folks are worried. They ought to be.

Our political gurus need to study the effects of the Kennedy and Reagan Tax decreases. In both cases, the U.S. economy took off, the government income increased substantially, and we obtained essentially full employment for everyone who wanted to work.

David Eller, Publisher

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