Today I want to write about the ridiculous Republican assertion that we can’t raise personal income taxes on those with income greater than $250,000, because those people are small business owners who won’t be able to create any jobs if their income tax is raised by a few percentage points.
Do the people who believe this even understand the meaning of income tax? Employee payroll is a business expense, so the personal income tax rate has nothing to do with whether or not a new employee will be hired. All employee expenses are paid out of pre-tax dollars. Higher income taxes are just as likely to encourage more employment. “If the government won’t let me keep the money myself, I may as well spend it on another employee.”
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 upfront from our taxable income.
Why do we put small business owners on a pedestal, anyway? To hear Republicans talking about them, you’d think that each small business owner is the second coming of Jesus. Not that there’s anything wrong about being a small business owner, but neither is there anything holy about it. Not everyone can be a small business owner. If every owned their own business, who would do all the work of employees? We probably already have too many people trying to start small businesses.
Do people even know the definition of a “small business”? It’s fantastically broad. Anyone who fills out a Schedule C is considered a small business owner. That means I am a small business owner. And a “small” business can have millions of dollars of revenue and hundreds of employees but still be classified as a “small business.” That doesn’t sound very small to me.
They say that fewer than 3% of small business owners make enough money to be affected by Obama’s proposed tax increase on the rich. And why does it matter whether a lawyer making more than $250,000 year is making that money as the owner of his own law firm or as an employee of someone else? If you look in the yellow pages (if yellow pages still exist), you will see that there is no shortage of lawyers. If one less lawyer decides to hang a shingle, I assure you all that there will be no great loss to our society.
Republicans seem to think that starting businesses is something rich people do in order to pay back society. Sorry, this is not the case. People start businesses in order to become rich, become richer, or because they hate working for someone else. Starting a business is a winner-take-all endeavor. The vast majority of small businesses either fail, or never make their owners especially rich.
So what exactly is the link between small business employment and income taxes?
Well, one can theorize that entrepreneurship requires people to become wealthy enough to quit their jobs and start businesses. But let me tell you a little secret. The top 2% have never been richer, and they have benefited from a decades long trend of becoming more and more well off compared to the bottom 98%. If the top 2% being really rich led to full employment, then we wouldn’t have the massive unemployment that we have today.
What about long-term capital investment? Because capital investment isn’t immediately deducted as a business expense, high income taxes might cause less capital investment? I personally don’t buy this argument (interests rates are as low as they have ever been, and accelerated depreciation, when allowed, has always been abused by the tax shelter industry causing an inefficient allocation of capital), but Obama did propose allowing businesses to immediately write off capital expenditures in order to counter this argument about high income taxes leading to less employment. Obama’s problem is that he is too smart. He understands the tax code better than the morons in the Republican party.