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By Gene Quinn |
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Obama likes to say that his plan will not affect small businesses because small business owners make less than $250,000 per year. This is true in one literal sense, but absolutely false in reality. If you take Obama’s plan at face value and it will not raise taxes on those who receive W2 wages that are less than $250,000 that does not mean that small business owners making less than $250,000 will not see a raise in taxes. Most small business owners, or at least those who have an accountant, do not take their pay all in W2 wages because the tax rate would be much higher. The IRS requires that business owners take a “reasonable salary.” The remaining profits are then distributed as a qualified dividend, which means they are taxed at the 15% capital gains tax rate rather than the W2 tax rate, which can easily be more than double the capital gains tax rate. So when Obama plans on raising the capital gains tax rate, by doubling it, he is not only going to force those investing in the stock market to pay more, but he is going to be requiring the overwhelming majority of small business owners to pay much higher taxes.
The IRS has never gone after anyone who takes any salary, no matter how low. The IRS only goes after those who take $0 in salary and 100% in qualified dividends. Additionally, the term “reasonable salary” is not clearly defined and is really based on the circumstances. In fact, there are so many people who own businesses that take 100% in qualified dividends that the IRS doesn’t go after those taking any amount of W2 salary. The IRS also doesn’t want to have the term “reasonable salary” defined because that could potentially remove the fear and define an amount that is reasonable, thereby giving small business owners the ability to know that they can get away with paying less W2 salary than they are.
So not only is raising the capital gains tax going to make it less likely for there to be a stock market recovery, but it will impact the small business community. As I see it the net effect is that some who work for small businesses are going to lose their jobs. Those small businesses that don’t pay health benefits are going to be hit even harder because they will either have to offer health benefits, which would easily run between $1200 to $1400 per month per employee family, or be fined an unspecified amount for not offering health insurance. While I think McCain’s plan of taxing health insurance benefits is wrong and just plain stupid, I think the Obama tax plan is exactly the wrong thing during a recession and would risk pushing an economy in recession into depression.
By the way, despite what Obama and Biden say, the Obama plan would not go back to the Reagan tax rates. I know Obama and his supports make the Reagan statement, and I know it has gone unchallenged by McCain for reasons I don’t understand, but Obama’s statement is not correct or at the very least extremely misleading. At the end of President Reagan’s term the top marginal tax rate was 28%. At the end of Bush 41 it was 31% and at the end of Clinton it was 36%. Since 2003 the top rate has been 33%. Under the Obama plan it would rise to 39.6%, making it even higher than the Clinton years. Giving Obama the benefit of the doubt and assuming he is not lying about his claim to take the tax rate back to Reagan’s, he must be citing the tax rate of the first few months of Reagan’s first term, before he was successful in getting Congress to lower the tax rates. So in other words Obama must be citing the Carter tax rates. I don’t know anyone that wants to go back to the Carter economy, do you?
I understand that the Clinton years were good, and I personally wouldn’t mind Bill as President again, and think he would be a sure win but for that pesky Constitutional Amendment limiting a President to two terms. Nevertheless, raising tax rates to the Clinton levels or higher during a recession is not wise, particularly when his tax raises would disproportionately impact the only segment of the economy that is adding jobs (i.e., small businesses).
Tags: Obama Lies, small business
Posted in Election 2008, Obama | Comments (2)
October 13th, 2008 at 8:57 pm
I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!
October 14th, 2008 at 6:03 pm
Thanks Jamie. I appreciate you reading my blog and I am happy to hear you have added me to your RSS feed.