In his recent proposal to extend the Bush-era tax cuts only for families making $250,000 or less, President Obama is displaying classic liberal class-envy politics of the lowest order. It may sound lofty and elitist to suggest that the wealthiest Americans deserve a tax break, too, that’s only because most people don’t truly understand the numbers.
You see, these tax policies are set by one’s gross income, not their adjusted gross, let alone their net taxable income. And the difference can be dramatic. Why?
Well, it’s because many small-business owners can easily see revenue streams over $250,000 prior to expenses in a single year, and yet be living hand-to-mouth because of the costs of doing business. These tax policies, therefore, can affect some of the country’s hardest-working families: small business owners.
The average owner of a body shop, for example, might organize his shop as a sole proprietorship for simplicity’s sake. That means that all revenues for that business will show up on his tax form as gross revenue; but it does not take into account his expenses.
Let’s imagine he has a business property; that means mortgage payments, state and local taxes, utilities, permits, user fees and insurance. If he employs a couple of handymen, then there are wages, benefits, more insurance, withholding taxes, and more. Then there is the cost of parts and supplies, storage of inventory, security costs and more.
When all these expenses are added up, that $250,000 in total revenue can easily disappear and dwindle down to less than he’s paying his two employees. In fact, most business owners don’t even pay themselves a salary or expect to show a profit in the first three years; instead, they take out loans, borrowing against the future of their business in the hopes that they become successful enough to stay afloat and become profitable.
And still, according to the US Small Business Administration, only two thirds of small businesses survive the first two years; only half make it to four years. In a down economy, those numbers can get even more dismal.
These are the people President Obama wants to raise taxes on by excluding them from any extension of the Bush tax relief policies. It’s not the Bill Gates and Steve Jobs level people who are the CEOs of companies manufacturing industrial products who will benefit from such tax relief. It’s small business owners barely scraping by, despite the fact that they can show healthy revenue streams; unless you compare their expense streams to their revenue streams, however, just looking at revenue is highly misleading.