Tag Archives: Small Business

News

Will raising taxes on the rich help the economy and create more jobs?

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The presidents of my two favorite think tanks, Arthur Brooks (AEI) and Edwin Feulner (Heritage) explain in this USA Today editorial.

Excerpt: (links removed)

First, there is no evidence that tax increases will actually solve our troubles. On the contrary, years of data from around the world show that when nations try to solve a fiscal crisis primarily by raising tax revenues, they tend to fail. In contrast, fiscal approaches based on entitlement reform and spending cuts tend to succeed.

American Enterprise Institute economists Kevin Hassett, Andrew Biggs and Matthew Jensen examined the experiences of 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007. They found that countries with successful fiscal reforms, on average, closed 85% of their budget gaps with spending cuts. The countries with failed reforms, on average, relied at least 50% on tax increases. President Obama’s strategy falls firmly in the latter camp. After discounting the accounting tricks that create fictitious spending cuts, the president’s plan would impose about $3 in tax hikes for every $1 in spending cuts.

That is, his approach would probably land America in the “failed attempt” column. Five years down the line, we would be in the same fiscal mess we are in today, just with higher taxes and a bigger government.

Second, tax hikes aimed at small segments of the population wouldn’t raise much in revenues. Consider the “Buffett Rule” that the president spent many months promoting. According to the Joint Committee on Taxation, it would raise about $47 billion over a decade. The federal government currently spends about $4 billion more per day than it takes in. The Buffett Rule, then, would raise about enough next year to cover 28 hours of government overspending. Heritage Foundation economist Curtis Dubay finds that closing the deficit solely by raising the two highest tax brackets would require hiking them to 159% and 166%, respectively.

Third, as economists and business executives have noted repeatedly, raising taxes on families earning over $250,000 per year is effectively a massive tax hike on small businesses. Most small businesses today organize as S-corporations or other pass-through entities; their income is taxed as personal income. A study by Ernst and Young shows that Obama’s proposed tax hike would force these small businesses to eliminate about 710,000 jobs. Moreover, these households already bear a great deal of tax liability. According to the most recent Internal Revenue Service data, those earning $250,000 and above — roughly 2% of all taxpayers — earn 22% of income, but pay 45% of all federal income taxes.

Simply put, increasing tax rates on the wealthy is not a serious approach to solving America’s fiscal woes. The problem is purely one of excessive spending, not inadequate taxing.

Revenues haven’t changed substantially over the last decade, but government spending is way, way up. That’s what’s causing us to go into debt – massive government spending on turtle tunnels and Solyndra. We can do better than socialism.

News

Obamacare in action: Denny’s to charge 5% surcharge and cut employee hours

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Story here from the UK Daily Mail.

Excerpt:

President Obama’s election victory ensured his Affordable Care Act would remain the centerpiece of his first term in power – but that has left some business owners baulking at the extra cost Obamcare will bring.

Florida based restaurant boss John Metz, who runs approximately 40 Denny’s and owns the Hurricane Grill & Wings franchise has decided to offset that by adding a five percent surcharge to customers’ bills and will reduce his employees’ hours.

With Obamacare due to be fully implemented in January 2014, Metz has justified his move by claiming it is ‘the only alternative. I’ve got to pass on the cost to the customer.’

The fast-food business owner is set to hold meetings at his restaurants in December where he will tell employees, ‘that because of Obamacare, we are going to be cutting front-of-the-house employees to under 30 hours, effective immediately.’

I think it’s a terrible thing. It’s ridiculous that the maximum hours we can give people is 28 hours a week instead of 40,’ said Metz to the Huffington Post.

‘It’s going to force my employees to go out and get a second job.’

Obamacare requires businesses or franchises with more than 50 workers must offer an approved insurance plan or pay a penalty of $2,000 for each full-time worker over 30 workers.

The program mandates that only employees working more than 30 hours a week are covered under their employers health insurance plan, chains like Olive Garden and Red Lobster are already considering reduced worker hours.

‘Obviously, I’d love to cover all our employees under that insurance,’ said Metz.

‘But to pay $5,000 per employee would cost us $175,000 per restaurant and unfortunately, most of our restaurants don’t make $175,000 a year. I can’t afford it.’

Claiming that he is not anti-insurance Metz has said that he understands the problems this will cause for his employees.

Several other restaurants including Papa John’s, Apple Metro and Jimmy John’s have announced plans to skirt Obamacare by reducing employees hours to make them part-time.

[…]Earlier this week Papa John’s CEO John Schnatter told shareholders in a conference call this week that Obamacare would cost the company 11 to 14 cents per pizza, a cost that would be passed on to customers.

My hope is that many of the people who voted for Obama will face these higher prices. But they are probably too stupid to connect cause to effect. After all, you don’t learn about economics by watching “Dancing with the Stars” and MTV. My big fear is that after Obama inflates the gas prices with his energy regulations carbon taxes, the insurance prices with his regulations and taxes, and so on, that the people will turn against business and demand communism. I pray that it doesn’t go that far, but many Americans are so bad at understanding economics these days.

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Commentary

How would raising taxes on the rich affect middle class working families?

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Investors Business Daily explains.

Excerpt:

Raising taxes on all those above $250,000 as Obama proposes would raise just $34 billion. That’s a whopping 3% of our $1.1 trillion deficit. Even if you seized all their income, it would only run the government for three months.

So the idea that taxing the wealthy will reduce the deficit is false. This is just class warfare, pure and simple.

Even so, Obama compounds the fib by going on to say his tax hike will have virtually no impact on small businesses. He notes, for example, that 97% of all small businesses would be untouched by his tax hike.

True, but irrelevant, as Treasury Department data show. For while there are 34.8 million small businesses in America, 30 million of those employ no workers.

Just 4.8 million, or 12%, employ workers. But an even smaller number — just 1.2 million — earn 91% of all the small business income. These are Obama’s “rich.”

But while they make up just 3% of all small businesses, they employ a stunning 54% of the total private U.S. workforce.

They are, in short, the nation’s job creators. And their owners, who report their small-business income on their personal income tax return, will be taxed at a higher rate by Obama.

So don’t be fooled. It’s not really the “wealthy,” as Obama says, who’ll get taxed. It’s small businesses. And it will have a devastating impact on jobs.

How devastating? A recent study by Ernst & Young noted that Obama’s tax hike, far from being “balanced,” would cost 700,000 people their jobs.

And it will no doubt kill hundreds of thousands if not millions more jobs in the future as would-be entrepreneurs decide not to start businesses in such a hostile tax and regulatory environment.

It’s important for us to realize that the people voting for Obama have no idea about these facts. A lot of people are annoyed that we lost the election last week. I think that if we want to win the next one then we have to start to think about becoming more persuasive with the people around us. We have to learn to deflate the slogans of those on the left with facts.