still not sure how you pay off those business loans if you're profits are getting taxed. This is why there are no new startups that show up out of the UK.
still not sure how you pay off those business loans if you're profits are getting taxed. This is why there are no new startups that show up out of the UK.
First, I did not say profit, you are misrepresenting what I said.
Second, labor costs do on average have more than $1 in gross income for every dollar spent.
This is so obvious, that it needs no explanation. Your version: "Average business brings in less income than it pays in salaries". Ya, that's how business works.
Was there confusion income meant revenue, not profit? It doesn't seem that's the case, you listed them as two different things.
Let's make this simple. Let's say I told you you could hire a maid at your house and deduct the cost from your taxes.
If your tax rate is 50%, and the cost is $20,000, you might say 'that $20,000 would only be $10,000 after taxes, so let's get the maid for $10,000, nice bargain!'
If your tax rate were cut to 5%, that would change to $19,000 after-tax dollars, making the maid much more 'expensive'. You might say 'that's too expensive'.
What I said was, the higher income tax rates incents the hiring. The higher the income tax rate, the 'cheaper' hiring is. That's an incentive.
SparkyJJO
Lifer
- May 16, 2002
- 13,357
- 7
- 81
If you increase corporate taxes it would be pretty hard for my work to survive as-is. We have been scraping by for quite a while now. Pretty much we're at the point that we can't lose an employee because of what needs done, but if costs go up without an increase in revenue, then we're screwed. Increasing the rate CAN NOT help us in any way.
And I know we are far from the only ones.
Increasing corporate taxes is hardly a good thing for many businesses right now. Large ones may survive it OK (depending on where they are at, sheer size doesn't mean they are doing just fine), but it could severely hurt smaller ones and kill others off.
Craig, you are making a huge assumption that someone even has money to hire the maid in the first place. Many right now don't, so increasing their taxes doesn't "help" them in any way.
And I know we are far from the only ones.
Increasing corporate taxes is hardly a good thing for many businesses right now. Large ones may survive it OK (depending on where they are at, sheer size doesn't mean they are doing just fine), but it could severely hurt smaller ones and kill others off.
Craig, you are making a huge assumption that someone even has money to hire the maid in the first place. Many right now don't, so increasing their taxes doesn't "help" them in any way.
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Well, then, we had better not only slash rates to zero 'to compete', we had better pay them every penny of the citizens' money as incentives! Otherwise they'll leave!
Your post explains why high tax states, like New York, are the lowest business activity in the nation, in contrast to our lowest tax states, which are the leading producers.
I'm actually not advocating increasing corporate tax rates right now, but everyone is feeling a problem because a few rich at the top have taken nearly all the wealth.
Your costs aren't going up though since that's all pre-tax. If we take the extreme version of "scraping by" and say that your company has net income of $0, then a tax rate of 0%, 30% or 35% doesn't change the situation at all. You're still at $0 net income and "scraping by."
On the flip side, I can sort of see the argument for new projects & investments, since it could change the cashflows (by decreasing your unlevered NI) for the project from positive to negative NPV or IRR. But if you're doing capital budgeting, you should have all that in your model and can change the tax assumptions to see what the effect would be. My guess is that the tax rate wouldn't be one of the more sensitive assumptions.
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SparkyJJO
Lifer
- May 16, 2002
- 13,357
- 7
- 81
If you're at $0 net income, the company cannot survive there very long. Anything above that, and you get taxed on it, which then if you increase taxes on it, leaves you with even less. There is a minimum amount of profit a company needs to survive, then another higher amount that is comfortable survival, then an even higher amount with is quite comfy. Increasing the taxes can take a company from cushy to comfy survival (not all that bad) or one that is at the comfy survival to just survival (not great) or take one that is just surviving down below that threshold well into the danger zone.
So I say again - raising corporate taxes CAN and DOES have NEGATIVE impacts on many businesses, and CAN lead to hurting some and killing others off.
So I say again - raising corporate taxes CAN and DOES have NEGATIVE impacts on many businesses, and CAN lead to hurting some and killing others off.
Interest payments are all pre-tax so it wouldn't be affected. Your principal (i.e. capex) would also be depreciated and actually be a tax asset since it reduces your taxable income.
I think what you're saying is that the company's profit margin is already very low and there is very little cushion for error. If the environment changes, then the company would have less in retained earnings (e.g. bank) to appropriately respond. That's a valid point.
What you said about increasing costs however is not affected by the tax rate. By definition, the costs of running the business is all pre-tax. You don't raise COGS or SGA by increasing tax, but to the prior point, you would over a period of time lower the company's cash reserves and it's ability to respond to changes in the market.
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The issue here is the conflation of personal income tax rates and corporate rates, a Republican favorite. Few are advocating increased corporate rates except wrt provisions that allow very large corporations to pay very low taxes, which gives them greater advantage over smaller entities.
Once money passes from corporate coffers to individuals, incentives and options change. Things really get turned upside down in the current environment, which is a liquidity trap. Demand is low & growth unlikely until that changes, and it won't change until either the enormous debt of the ownership society is paid down or some force other than private enterprise creates employment & demand. Very low returns mean that investors see no reason to risk after tax money in anything other than treasuries. For the purposes of the general economy, much of money flowing to the investor class might as well be getting burned, because it currently ceases to circulate once they get it. Raising their personal taxes will mean that govt has more revenue, which is currently at historical lows, and that fewer treasuries will be available, forcing investors to either just hold cash or to risk.
Which dovetails nicely with the demands of Repubs to enforce austerity, which will create deflation. There's more than one way to get a real return in a deflationary scenario, one of which is to just sit on liquidity as it gains purchasing power. The greater the deflation, the tighter they'll hold onto their money, creating a debt deflation spiral, as in the early 1930's.
I think there's some merit to ending corporate taxes entirely & taxing all income at the same progressive rates, regardless of source. It changes the whole dynamic, and the rhetoric, as well. No more flimflam pitch about double taxation, and no more holding profits offshore to avoid corporate taxes. No more having corporate headquarters as a post office box in the Caymans. Stockholders wouldn't stand for it. It's one thing for corporate management to say they're holding out on the IRS, another entirely when they're just holding out on the stockholders who'd be paying higher rates on their own dividend income.
Once money passes from corporate coffers to individuals, incentives and options change. Things really get turned upside down in the current environment, which is a liquidity trap. Demand is low & growth unlikely until that changes, and it won't change until either the enormous debt of the ownership society is paid down or some force other than private enterprise creates employment & demand. Very low returns mean that investors see no reason to risk after tax money in anything other than treasuries. For the purposes of the general economy, much of money flowing to the investor class might as well be getting burned, because it currently ceases to circulate once they get it. Raising their personal taxes will mean that govt has more revenue, which is currently at historical lows, and that fewer treasuries will be available, forcing investors to either just hold cash or to risk.
Which dovetails nicely with the demands of Repubs to enforce austerity, which will create deflation. There's more than one way to get a real return in a deflationary scenario, one of which is to just sit on liquidity as it gains purchasing power. The greater the deflation, the tighter they'll hold onto their money, creating a debt deflation spiral, as in the early 1930's.
I think there's some merit to ending corporate taxes entirely & taxing all income at the same progressive rates, regardless of source. It changes the whole dynamic, and the rhetoric, as well. No more flimflam pitch about double taxation, and no more holding profits offshore to avoid corporate taxes. No more having corporate headquarters as a post office box in the Caymans. Stockholders wouldn't stand for it. It's one thing for corporate management to say they're holding out on the IRS, another entirely when they're just holding out on the stockholders who'd be paying higher rates on their own dividend income.
Who cares if they are working with minority businesses or not?
I don't care in the slightest and I can guarantee it isnt integral to those companies.
I think the point of the post is since taxes are only on NET profit than the OP is trying to figure out out a situation where a Job increases net income under increased taxes but does not increase net income at current tax levels.
Employee A is going to make money for the company or cost the company money.
If he is making money keep him and if he is losing money dump him.
How does the tax picture factor into it because if he is a loser he should be dumped whether the tax rates increase or not. It is hard to picture a scenario where he is worth keeping with lower tax and not worth keeping with higher taxes. Intuitively he should be a winner or a loser and the tax law should not have any bearing on that.
Employee A is going to make money for the company or cost the company money.
If he is making money keep him and if he is losing money dump him.
How does the tax picture factor into it because if he is a loser he should be dumped whether the tax rates increase or not. It is hard to picture a scenario where he is worth keeping with lower tax and not worth keeping with higher taxes. Intuitively he should be a winner or a loser and the tax law should not have any bearing on that.
umbrella39
Lifer
- Jun 11, 2004
- 13,816
- 1,126
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Jaskalas
Lifer
- Jun 23, 2004
- 35,934
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You may be looking at this backwards.
It may not be that you FIRE a person due to being taxed, but you damn well won't hire anymore if the pool of available cash to do it with has been taken from you.
Then with turn over rates, and less hiring, private sector employment goes down.
Best case scenario, you transfer employment from the private sector to the public. Worst case, government employees skim money off the top in the transfer, pad their cushions a little more, then throw you the crumbs.
A bad business has competition and a government watch dog protecting you from it. The degree of separation from our law makers is crucial. When your employer makes the law - you're f'ed. The last thing you want is centralized planning. It starts with a 'tax and spend' plan to transfer employment out of the private sector.
It may not be that you FIRE a person due to being taxed, but you damn well won't hire anymore if the pool of available cash to do it with has been taken from you.
Then with turn over rates, and less hiring, private sector employment goes down.
Best case scenario, you transfer employment from the private sector to the public. Worst case, government employees skim money off the top in the transfer, pad their cushions a little more, then throw you the crumbs.
A bad business has competition and a government watch dog protecting you from it. The degree of separation from our law makers is crucial. When your employer makes the law - you're f'ed. The last thing you want is centralized planning. It starts with a 'tax and spend' plan to transfer employment out of the private sector.
We're not talking about raising tax rates.
We're talking about reversing the completely irresponsible Bush tax cuts that had no way of paying for themselves. This is not akin to raising taxes. It's undoing a ridiculously retarded economic policy. There is a fucking difference Conservatives.
We're talking about reversing the completely irresponsible Bush tax cuts that had no way of paying for themselves. This is not akin to raising taxes. It's undoing a ridiculously retarded economic policy. There is a fucking difference Conservatives.
1st, your pool of cash isn't taken away, just smaller. 2nd, your new hires would still come out of the pretax revenue that they would generate.
Wow. Ok so you're criticizing a guy who generates over $6,000,000 in revenue, pulls a $200,000 salary, and invests $400,000 back into his business? Really? He's working on a 10% profit margin and EMPLOYING 500 PEOPLE! Wtf is wrong with you? Why would you want to tax this guy more? You're telling me that a guy employing 500 people should take on all the risk, stress, and burden without being compensated? No offense to you but $200,000 is not a lot of money for a business owner. Especially not one who employees 500 people.
Absolutely
If he is truly employing 500 people and he is only making $200,000 as you claim then he is doing it wrong and should not be in business to begin with.
No matter how you rich radical righties try and spin it you are wrong.
Don't like it, leave the country and complain elsewhere.
Agree to disagree. You're clearly out of touch with the economy. It's in the dumps. A 10% margin is common. I'm gonna assume you're uneducated and working graveyard at a local diner.
I still think this whole argument is missing the bigger picture.
Why should we raise taxes? What are we doing with this tax money? The problem is that the government continues to spend more money (regardless of income) without reducing expenditures or making wiser expenditures.
The USA doesn't really offer it's citizens much for our tax money. Social security and Medicare. No free education. No free healthcare. No maternity leave. No child care. No mass transit. No pension plan (SS is not a pension plan).
Just so everyone understands how dumb social security is:
The average is $1100 which is not enough to cover a fraction of living expenses - especially at retirement. It's basically a complete waste of our time and money.
How do all these other countries provide their people with valuable services while all we get is a large military, Social Security, and medicare?
Why should we raise taxes? What are we doing with this tax money? The problem is that the government continues to spend more money (regardless of income) without reducing expenditures or making wiser expenditures.
The USA doesn't really offer it's citizens much for our tax money. Social security and Medicare. No free education. No free healthcare. No maternity leave. No child care. No mass transit. No pension plan (SS is not a pension plan).
Just so everyone understands how dumb social security is:
The average is $1100 which is not enough to cover a fraction of living expenses - especially at retirement. It's basically a complete waste of our time and money.
How do all these other countries provide their people with valuable services while all we get is a large military, Social Security, and medicare?
Fern
Elite Member
- Sep 30, 2003
- 26,907
- 174
- 106
I'd say you're 100% wrong.
The problem is most Liberals/Progressives/Dem here do not understand how businesses are taxed.
The vast majority of businesses here in the USA are flow-thru entities, meaning the business's profits are taxed on the owners personal tax return.
Any half-way decent discussion requires that personal tax rates and business taxation must be CONFLATED.
In this specific case, the Congressman who owns Subway restaurants, I'd say there's a high probability he owns the restaurants in an S-corp (if his advisers are even half-way competent). That means the business profits end up taxed on his personal return (Form 1040).
Fern
Fern
Elite Member
- Sep 30, 2003
- 26,907
- 174
- 106
It's raising taxes. Period.
Since our first tax law was in 1913, any change in tax law after that is just reversing some previous tax law/policy.
Fern
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