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Taxes, economics and political gamesmanship.

October 19, 2017

Should the “rich” get tax relief? BTW, what’s “rich” in today’s hyper-partisan political climate?

That’s yet to be published, but if you define it as only people whose AGI (adjusted gross income) qualifies them for the 39.6% tax bracket, it’s any single person over the limit of $418,400 or any couple over $470,700 AGI. If you take it to mean anyone paying a rate of 33% or more, those figures go down to $191,650 and $233,350 respectively for 2017.

And that doesn’t take into account all the other taxes we are saddled with, including but not limited to state income tax, property tax, local option taxes, etc. etc. Add those in and all of a sudden those people are paying 50% or more of their income to some governmental agency.

Let’s see, that means that the people at the lower edge of the “rich” threshold can spend half the above figures to keep the economy afloat.

And yeah, even that is certainly not peanuts. You can still buy a lot of overpriced lattes for that.

So why should these people get a tax break?

Because they DO keep the economy afloat. These are the people who hire the gardeners, accountants and carpenters, and buy the over-priced technology platforms we call cars today.

These are also the people who pay for all the public assistance programs we have to help the less wealthy among us.

And then there are those businesses that we all depend on for our creature comforts.

The “rich” are also often the people who provide the jobs that the not-rich depend upon to get along.

Unemployment is at or approaching historical lows on a state-by-state basis, even among racial groups like Hispanics.

For more people to go to work or even enter the workforce for the first time, we’ve quickly reached the point where we have to create more jobs.

For all the self-congratulatory chest pounding by the mega-businesses like Amazon and Starbucks  it is still the small businesses that drive job growth.

The people that start or own those businesses often cross over into the so-called land of the rich.

Of course small is in the eye of the beholder (the government calls businesses with up to 500 employees small when awarding contracts) , but typically most of the job creation is done by businesses that employ less than 100 people and eschew the double taxation burden inherent when adopting a standard Chapter C corporate structure.

These are the people who have to declare any income above business expenses as personal income.

Let’s say you are a single person with a home improvement business and a dozen employees.. Your business can currently  write off about 70% of the business expenses against business revenue.

Let’s say that business was good last year. It made a million dollars, and had expenses of $700,000.

According to the tax code that means that $300,000 passed through to you.

You may be forced to put that on paper, but no business in the history of businesses can exist for long if the owners don’t reinvest the profits into the company.

Perhaps our hypothetical owner actually keeps $100,000 as salary.  The remaining $200K NEVER LEFT THE BUSINESS BANK ACCOUNT.

That’s the reality of the conundrum most small business owners find themselves in at the end of the year.

On paper you are in the 33% tax bracket. That means that for 2017, you will pay a flat Federal tax of$46,473 plus 33% of any excess over $91,900. In terms of real  personal income, your salary just dropped to about $53,000 BEFORE you pay any of the other income taxes.

That other $200K paper profit usually winds up paying for equipment upgrades or possibly yes,  a couple more employees.

That’s about as simple as Musings can make the reality of owning a small business and being constantly maligned for being greedy capitalists.

Think about that the next time you hear Chuck and Nancy and Elizabeth ragging on the rich.

That’s not to say the mega, mega rich aren’t in a better position to game the system. People like Beyonce or Jeff Bezos or Michael Bloomberg, and yes, even the real estate moguls like Donald Trump  spend a healthy amount of cash to take advantage of every legal loophole.

But lumping everyone who files on over $100K or even $250K into some talking point  stereotype is just another liberal lie.

From → op-ed

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