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

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Under Obama’s classification, one could be a sole proprietor that makes $250,000 a year and has few expenses, so his/her net profit is $230,000.  That individual would see no tax increase.  Another company could make $500,000, but have 20 employees and large expenses.  The latter is very different, and would have its taxes increased significantly under Obama’s tax plan.

In order for that larger, but still very small company, to continue to pay their employees a competitive wage, add an employee or purchase new equipment (like Joe the Plumber’s plumbing truck) they need the cash flow that comes from what Obama considers taxable earnings.

Now why should you care?  Because many people work for these businesses and higher taxes on the businesses will make them less able to grow, both from a sales standpoint and as an employer.  That means lower and fewer wage increases, fewer jobs, and less incentive to do business in the US in the first place (new businesses will not be established because the tax costs in America are just too great).

Let’s also consider how the two different businesses mentioned above help America.  The first business, the sole proprietor, has one employee that makes well north of $230,000.  The US collects taxes on one person from that business.  The latter business employs 20 and they ALL pay taxes.  All contribute to Social Security.  As the company grows, they contribute more.  All of this benefits society.  The sole proprietor has little incentive to increase his/her wages past the increased tax rate, so will likely only work the amount required to make $249,999.99.  The larger company wants to expand to remain competitive.

Increasing taxes on the real company (not the sole proprietor) will severely impact their basic cash flow.  If the government also forces them to provide health care, and if they did not before, it could make that business no longer viable.  If that happens to the company we describe above, 20 people will be out of work collecting unemployment, not contributing to the tax base or Social Security.  Maybe they can find another job, but as that happens to more businesses, there will be fewer jobs.

Given this reality, the larger, but still small, company could be badly hurt by Obama’s plan while the sole proprietor would not even see a tax increase.  It is misguided because it benefits exactly the wrong people, those not creating the jobs in the first place!  The businesses with the highest expenses EMPLOY PEOPLE!  If you tax them more, they will employ fewer people. It is simple mathematics.

So, let’s eliminate that false classification of the sole proprietor as a small business.  What is the honest percentage of small business we are talking about here?

This is difficult to determine.  It is a clear fact that people that operate independently will not make more than $250K in most cases, but we would ask Obama what percentage of his random number between 90 and 98% includes sole proprietorships.  If he doesn’t know, then he does NOT know the impact on American businesses, and if he does know, he is being disingenuous not telling America.

We believe no one operating a high expense, low margin business would ever endorse Obama’s plan if he clearly explained it.  We also believe almost no small business owners operating viable businesses that employ others would endorse Obama’s plan either.

Playing Robin Hood

Obama talks a great game, but in reality, his tax plan (which he himself refers to as wealth redistribution) is little more than welfare.  It is a way of taking the profits of small businesses that create jobs and contribute to the tax base, and distributing that money to the people that do not.  That is a major tenet of socialism.

Obama’s plan is dangerous and can be clearly demonstrated as a lie to America.  It will cost jobs, not create them.  It will distribute the wealth to the poor, which may assist them in some small way temporarily but destroy job and wage growth, which will hurt the poor vastly more in the long run.

There is a famous adage “Give a man a fish, you feed him for a day.  Teach a man to fish, you feed him for life”. We see the analogous phrase being, “Give a man a tax break, you feed his family for a day.  Give a man a job, you feed him for life.” Obama’s tax plan on small business will destroy jobs.  It is bad for America and destructive to our economy at a time we can least afford it.

Obama is wrong here and McCain is clearly right.   Including small business in his tax increase is a clear way to destroy small business and the American dream.  It will only temporarily result in an increase in the taxes paid to government.  As companies are destroyed and people lose their jobs, the tax base will shrink and the government will take in less tax.  Americans are hurting, but they need jobs, not welfare.  Those that don’t want jobs don’t deserve the welfare.

This is a lie to America.  It is playing Robin Hood at the expense of small business operators that require operating profits to grow and to employ others.  It also targets exactly the wrong businesses in the plan, those that contribute the most to the nation’s tax base.  It is foolhardy and Obama’s presentation of the plan is designed to confuse the average citizen.

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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.

    Charles…

    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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