a question about taxing high income individuals

Discussion in 'Economy' started by Breck62, Dec 2, 2012.

  1. Breck62
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    Breck62 Rookie

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    Please help me understand this:
    The main argument AGAINST raising taxes on incomes over $250k is that it would hit small business owners. They'd have less money to pay salaries and they'd cut hiring and the US
    would loose jobs. Seems to make sense.
    But, salaries are a business expense. They're paid with pretax dollars. A tax increase on incomes over $250k would not impact money used to pay salaries. It would only impact the owners salary. No?

    example: assume a business has revenues of $1M /year and their only expense is salaries and thats $300k/year. The owner of the business takes home each year $700k in profit.
    Now the tax increase goes thru. It does NOT decrease the money available to pay salaries.
    The $1M is left alone. It ONLY impacts the $700k in profit that the owner gets.
    It appears the proposed tax increase would NOT affect jobs.

    What am I missing?????
     
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  2. Vel
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    Vel Gold Member

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    If you're a business owner planning an expansion, that money you have in the bank that the government calls your profit is what you use to make that expansion happen. A business might have cash on hand but that's working capital rather than savings. Sometimes you have to save money to be able to make the investment that you want.
     
  3. konradv
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    konradv Gold Member

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    But isn't money you've saved money you've already paid taxes on and any money put back into the business would be deductible? I don't think the OP is missing anything. We're being sold a bill of goods that doesn't exist.
     
  4. Vel
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    Vel Gold Member

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    No.. Let's say as a business owner I grossed a one million dollars in 2012. Out of that one million, I have 700,000 dollars in operating expenses leaving $300,000. Out of that $300,000 I used $90,000 as my personal income. I'd like to open another store in the summer of 2013, so the $210,000 dollars left in the bank is what I will use to bankroll my new store. Do you see now?
     
  5. jillian
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    jillian Princess Supporting Member

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    nothing
     
  6. konradv
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    konradv Gold Member

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    So an extra $2,000 is going to ruin all that? Is that what you're trying to say? You'd still have $208,000. Where's the big hit you're supposedly taking?
     
    Last edited: Dec 2, 2012
  7. Rshermr
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    Rshermr VIP Member

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    Exactly. The company would pay taxes on $300K, of which $250K is exempt from the new tax. That leaves $50K subject to the new tax, which is at 4%. Which would mean $2k in new tax, as you said. So, for that $1M gross business, that $2K is the "massive" tax increase the cons are talking about.
     
  8. Bill Angel
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    Bill Angel Gold Member

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    The government also provides all manner of investment tax credits.
    And if someone has a profitable business and wants to expand they shouldn't have a problem borrowing money at low interest rates to finance the expansion.
     
    Last edited: Dec 2, 2012
  9. Big Black Dog
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    Big Black Dog Gold Member Supporting Member

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    Instead of raising taxes on anybody that already pays taxes, why not tap into that nearly 50% of the population that pays no federal income tax at all? Let's see them do their "fair" share for a change.
     
  10. Rozman
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    Rozman Gold Member Supporting Member

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    i love how Liberals are always happy to spend other peoples money...
     

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