Obama’s Tax Plan Exposed, The Destruction of Small Business And Why McCain Won the Presidential Debate October 15, 2008

In this third and final debate, the key issue was the economy, primarily the clarification of the tax plan of each candidate.  The key was not those impacted among individual employees, but how businesses would be impacted, specifically small businesses.

Obama, while saying he will only increase taxes on those earning more than $250,000 a year, includes American business in his cross hairs.  And while $250K seems like a large sum, most small businesses operate well in excess of that amount and will be severely impacted.  The distribution of the tax will be uneven and specifically unfair to those businesses that are more capital intensive and have more employees.

In response to our original article, many expressed concern because Obama did not state clearly whether he was speaking of taxing gross or net business income in the debate. Some believe Obama is trying to be intentionally misleading on the issue, so we decided to clarify.

What we have found in our research is that Obama does say, buried deeply on his website, that the amount to be taxed would be the business’ net profit, not the gross receipts.  If it had been gross receipts, that would have shut the doors on many small businesses in America overnight.

Still, there is a major concern with his plan, because what Obama qualifies as a small business is totally suspect. Small businesses, according to the Small Business Administration, have average incomes in the millions of dollars and can employ hundreds. This site provides a summary.

So, if the Small Business Administration data is correct, how can Obama claim that 90-98% of American small businesses would be excluded from his tax increase?  The lie in Obama’s plan is that he is including sole proprietorships which aren’t really businesses; they are just individuals filing taxes that are not on a W2. That includes the maid, a lone painter, etc. These are businesses by tax qualifications only, not true businesses in any sense of the word.  They do not employ anyone, and they do not provide the same benefits to the nation as real businesses which employ people that also contribute to the tax base.

Let’s examine this.

First, Obama attempts to delude people that make less than $250,000 that they will benefit under his tax plan.  The plan, at first, does seem beneficial for the person in a normal job working for a US-based company.  It is true that most of those people do not make more than $250K, so they would get a tax cut.  Great plan, right?  Think again.  How many of these people work for small businesses?  If you do, you definitely should consider how Obama’s plan to increase your employer’s taxes could cost you a raise or even your job.

Second, and most importantly, when Obama speaks of taxing only those that make more than $250,000, he groups in what he claims are small businesses that have a net profit of over $250,000.  He has often referenced statistics stating how this applies to small businesses in America.  These statistics are not only misleading, they are an outright lie and the cornerstone of Obama’s campaign.

Obama states that at least 90% of small businesses make less than $250K, but the huge flaw in that statistic is it includes the sole proprietor.   These people are not making more than $250K on average any more than the average person does in any other job in America.  They are not considered a “business” for any other reason than they do not get paid via a W2 (with automatic deductions).  They do not operate as a true business, they do not employ others, and they essentially are not a business at all in any real sense of the word.

Joe the Plumber and Small Businesses

What we are most interested in are small businesses that provide jobs, and how those businesses will be impacted.  We want statistics that isolate small businesses that employ people, genuine small businesses.

The expert on small business in America is the Small Business Administration.  This SBA does a great job at summarizing the incomes and employment limits for many businesses to qualify as a “small business”.  None are as low as $250,000, some employ hundreds, and all would pay significantly higher taxes under Obama’s plan.

Obama claims that the companies, even though their taxes will rise sharply, will pay lower taxes than under Reagan.  That is a lie as well.  The rate could potentially be well north of 50% if you count Social Security contributions (a point that Obama conveniently glosses over).  Then consider the added expense of health plans (which Obama wants to force upon all businesses).  It is the highest tax rate since the Carter years, and we all know how that turned out…record unemployment.  Tack on the cost of health care and you have a small business disaster waiting to happen.

Why is this dangerous and why is it easy for Obama to mislead the average citizen?  The concept of taxing a business based on its net income sounds good to the average American when you throw out what seems like a large number to most of them.  Most don’t earn that much money, so we are just taxing the rich, right?

Wrong, a company’s net income is not what the proprietors take home.  It is extremely different from earned wages.  It is the money left after expenses for the prior business year, such as salaries paid, equipment depreciated, etc.  Most businesses reinvest large portions of their profits to grow the business, or in some cases, to just keep up with inflation.   If there are no profits, there is no money to invest.

In addition, the distribution of the tax does not take into consideration that businesses are vastly different from one to the next.  Some are more capital intensive, some employ more than others and others operate in areas with a significantly higher cost of living (New York versus Mississippi for example).

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5 thoughts on “Obama’s Tax Plan Exposed, The Destruction of Small Business And Why McCain Won the Presidential Debate October 15, 2008”

  1. @ClinicalTrials

    Hi Clinical…

    I was not speaking of the 500K being gross receipts. What I was saying is that is a company that after taking all its deductions has 500K in taxable profits. Their taxes and health care expenses will explode.


    You have to read the entire article. It isn’t just the tax increase, which would amount to approximately $7000-$10000 in increased taxes in our example. This is a company that likely has net in the millions (remember, we told you they are capital intensive and have 20 employees) and likely needs that 500K in cash flow after taxes just to operate. The government will also levy the requirement to provide health care simultaneously. Social Security contributions have increased as well and will increase again next year. In addition, they would then be forced to provide health insurance for 20 employees. That will likely place many companies that were profitable in negative territory. You minimize the problem by just looking at the additional $3000 per $100,000 as does Obama. But the cost of health insurance per employee will be an additional $10K per employee on average. They are adding that 3-4% on top of what is already one of the highest tax rates in the world and creating the highest corporate tax levied in US history. Then adding the death blow of forced health insurance.

    Increasing taxes and financial demand on almost every small company in America is dangerous and totally improper at a time the economy is in a downturn. We have one of the highest tax rates in the world, and we are making it worse as we enter what the government terms the worst recession in decades.

    Try to simplify it into terms you can understand. Say you had 3K per month after paying the government all your taxes. You then have to pay for food for a family of 4 ($200 per week), rent ($1200), clothing ($200), utilities ($300). Say that was it, and you had $500 left over. Now the government taxes you an additional 4%, charges you more for Social Security of about an additional 1% and tells you to cough up $1000 more a month for health care for your family.

    It is only 4%. That won’t break the bank will it? Think dude. This is way way worse than you think.

  2. Your argument/analysis does not add up. If the small business you state of 250K profit with low expenses and sole ownership gets to deduct 20K to obtain 230K as the final income and get tax rebates, then the same rule will apply across the board. I know this from personal experience during my working life. Using that math, the business with 500K profit and larger expenses (20 employees) will have 20K per person giving 400K in write offs. The net income would then be 100K and would be well below the 250K barrier. The McCain plan is vague and undefined. We have doubled deficits in the past 8 years and I am afraid no policy may truly hack it, especially with endless wars. I am an Eisenhower type conservative and truly fear the military -industrial complex and 750B/yr budget. Amazingly, Bush II added more unfunded promises into entitlement programs and decided to give another 700B to the bankers for their criminality. Executives get to keep a further 70B of this as bonus etc. in this socialism for the rich! American people are truly sleeping, while a handful clean up, leaving us holding the bag. Add the so called “Patriot Act”, spying on us, the destruction of the Bill of Rights, and you have an Orwellian nightmare. I am not a fan of either party and feel most should be thrown out so we can start afresh without lobbyists etc. For the moment, the Republican Party should lose big so that a cleansing takes place. Sensible Democrats would pay attention and clean up house as well. Either way, I see 10 -15 years of pain.

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