Small business hiring

This matter of small businesses and their taxation needs to be put to rest with regard to the effect  increased taxation has on hiring.

The owner of an established business deducts, among his numerous expenses, the cost of labor from his taxes. The labor he employs in his business is the minimum required to fulfill his obligations to his customers and meet demand--no more, no less. If he hires beyond what is required, he is doing so for an ulterior purpose other than profits and, as such, obtains some degree of personal satisfaction from the superfluous hiring--that's his prerogative and is not to be considered here. But the true businessman hires only what he needs and deducts the expense from his revenue so as not to subject it to taxation.

This businessman then obtains a profit that can be taxed by the government. At this point, it is no different than the salary that is obtained by the vast majority of U.S. taxpayers. If profits over 250,000 dollars are taxed at a higher rate, that should have zero impact on his business operations. What man would fire essential people (remember there should only be essential personnel in a small business) so as to make up for the loss of some of his profits beyond 250,000? It is a no-brainer that If he does remove essential personnel, he risks his business.

Now, let's consider what effect lower taxation has on the operations of this business. With additional cash at his disposal, he could hire more people and produce more goods or services but only if there is demand. In a poor economy, demand is low and he is unlikely to spend his cash on more labor. Could he start a new business? Here again, he is unlikely to spend his personal cash and would probably opt to take out a business loan--let those with far greater cash reserves assume most of the risk; he'll keep his cash for this kids college and the wife's upkeep with the Joneses.

I was a small business owner who had zero profits after expenses. The taxes I paid on my salary as CEO were no different that those imposed on the average taxpayer. It is disingenuous for anyone to say that higher taxes result in less hiring for the established business.

We now turn to the entrepreneur. With lower taxes the owner either now has an incentive to continue working the long hours to make his  business succeed, or he re-invest his profits back into the business. After a period of time with lower taxes, he should be taxed like any other taxpayer. It is like the way the IRS allows you to have deductions on a home business with shoebox accounting but pulls the plug if you keep showing nothing but losses.

Why aren't you hearing this from the small businessman? Well, unlike Mr. Gates or Mr. Buffett who have more dough than they know what to do with, the small businessman, like most of us, wants a better car; a longer, more exotic vacation; or a more secure retirement. You could hardly fault him for that. But the issue is: should his tax rate on income over 250,000 dollars be as low as that which the average taxpayer pays on a relatively paltry 40,000? Consider this:  a person earning 40,000 would pay 50% of that if he were to get $20,000 worth of bridgework (an injustice in and of itself) but the man earning $250,000 only pays 8%. Why should dental care take up more of my income? It doesn't seem fair and it isn't but what if the dentist--allowed to charge the rich 50%--now decides to do only a few rich a year and ignores the needs of the lower-paying poor? Lucky rich that pay no more than the poor.!

How is this relevant to our discussion of fairness in taxing the rich? Well, the problem is that the lower-earning person is left with very little to pay for his other essentials. Should the dentist be asked to price progressively according to his patient's ability to pay? Of course, but only in a fair world which cannot be had on account of the automatic charges of class warfare and socialism and envy. The rich who want to hold on to everything do not acknowledge the inequity of paying for an essential that leaves the poor with far less purchasing power.