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September 13, 2011

Tax the rich, more, more!

Filed under: Food for thought for friends — Alec @ 6:52 pm

I don’t mind raising taxes on sports stars and the crazy rich that make $10 million a year.   But, I do have a problem with raising taxes on small business people that earn more than $250k per year.

Current top tax rate is 35% (they were 39.6% until 2000).     Add Social Security and Medicare for self employed of 15.3% which most small business people are either directly or indirectly.    Add State of an average of 5%.   Add City of 2 %.   and we are at 57% of earnings for a tax rate.    I am not even adding property taxes, sales tax, gas taxes, utility taxes, etc.  (these added taxes could easily be another 5 to 10%).

So.   Taxes are too high!

The problem with raising taxes on those who make over $250k is S corp. vs. C corp.     Many small businesses are S corps. and they must treat all earnings at the end of the year as real income.   If we increase their tax rate, they will invest less, take less risks, and not try to grow their companies.    C Corps have retained earnings, and do not claim all profits as real income.   They pay Corporation taxes and can find some deductions to offset.   The problem with many small businesses converting from S corp. to C corps. is that they then can be double taxed.  ie,  1st on corporate earnings, then on personal income.

My suggestion,   Change the S corp. laws so that they can have retained earnings and when they sell their business they do so as capital gains.

Summary, if small business persons do not believe they will get a return on their investment by reinvesting in their business,  they won’t.   And right now with all the uncertainty in Washington,  they are just waiting.

PS:   I don’t make over $250k net,  so this does not affect me personally.

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