Wednesday, May 06, 2009

Obama's Tax Pains

At first blush there seems to be something to like about the business tax law changes the President will be proposing. For one companies will no longer be able to write-off domestic expenses for generating profits abroad. So, work performed in New York for a Dublin office would not be tax deductible in the United States. This change is a way to close unfair tax loopholes that have long encouraged companies to send thousands of jobs overseas. Obama would characterize the move as a way to keep jobs in the United States and fight a system that is rigged against U.S. companies who keep their entire business operation domestic.

This sounds downright reasonable, huh? Hold on...

Administration officials said they will close a Clinton-era provision that let U.S. companies "check the box" and treat international subsidiaries as mere branch offices. What was meant as a paperwork shortcut is now a widely used and perfectly legal way to avoid paying billions in taxes on international operations.

OK... Next.

Obama plans to ask Congress to crack down on tax havens creating a major shift in the way courts view guilt. Under this proposal, Americans would have to prove they were not breaking U.S. tax laws when they send money to banks that don't cooperate with tax officials. It essentially would reverse a long-held assumption of innocence in U.S. courts. Umm, Americans having to prove they are innocent - in other words - presumed guilty???

On principle alone this has an ominous quality to it.

Why do I get the feeling that this administration is more interested in collecting revenue than truly changing bad tax laws into something that works for the American people? The people need jobs more than the government needs revenue and yet his tax proposals seems 180 degree's out of phase with job promotion. Raising taxes on capital gains and dividends will be counter productive for job creation. In all truth it is all this uncertainty about what this bunch in the White House is going to do that is holding down business investment and job creation.

This much is certain, Congress and the Administration are going to allow the Bush tax cuts to expire next year. That, my friends, equals a significant tax increase across a wide band of the tax paying public. Contrary to popular belief the Bush tax cuts benefited more the just "the rich". The notion that Obama is going to recoup the trillions in spending by getting the rich to pay their "fair share" is ludicrous. There just aren't that many rich people. (Unless, of course the criteria for being considered rich is $70,000 a year in income. Don't laugh.)

Raising the taxes significantly for those "rich people" earning over $250,000 a year is likely to decrease revenues in the long term. Many of these so-called rich are small business owners who report their business income are personal income - in other words they are not rich.

Recently, the nonpartisan Joint Committee on Taxation, which evaluates tax policy for Congress, projected that a significant percent of filers with business profits -- about 750,000 taxpayers -- were likely to face far higher taxes in 2011 under Obama's proposal.

Republicans have argued that those who fall into the upper brackets tend to be firms with the greatest capacity for job creation. In a 2007 survey, the National Federation of Independent Business found that about 15 percent of small-business owners -- and half of those with at least 20 employees -- said they expected their household income to exceed $200,000. That's perilously close to being rich. If increasing the size of their business - which means hiring more workers - would also push their personal income over the limit then many will choose not to expand. Bye bye jobs.

To the majority of us who earn less than $200,000, raising taxes on higher earners might not sound so bad. A lot of small businesses fall into that category. So, if you are telling these business owners their taxes will go up; odds are, they'll cut spending . . . stop hiring or even lay off people.

Add to the fact that their tax bill stands to grow dramatically if Obama were to revive a plan to apply Social Security tax to income over $250,000 instead of capping it at the current $106,800. Where the businessman is an employee and an employer, he would have to pay both portions of the tax thus tacking 10's of thousands onto his overall tax bill. Many small business owners will consider scaling back operations.

Punish the rich is the mantra of the populist politician. Never mind that the rich are the ones who create jobs. Funny thing about populist politicians when they finally leave office they themselves become the very thing they pretend to loathe - Filthy rich!