Monday, December 17, 2012

If President Obama gets his way and is able to punish successful people with higher tax rates he will be killing jobs.

From today's Monday December 17, 2012 Wall Street Journal Letters to the Editor:

Raising Taxes on Small Businesses

Regarding the letters of Dec. 5 on Costco's special dividend: Costco may grow more slowly but will weather whatever tax regime is in place. However, small private companies (that create virtually all the new jobs in the country) lack a large company's ability to shift income and lobby Washington, and they won't fare so well.
Imagine a small retailer with two stores who'd like to add a third. Most small businesses are structured as pass-through entities and pay high marginal federal and state income taxes on profits. The after-tax math is simple: To open a new store, a 40% tax rate on the income will require higher sales and profitability expectations for the store than if taxes were 30%, 20% or 0%.
Looming higher capital-gains taxes will also make it worth less as a business when the day comes to retire and sell. Might as well dividend the cash out now rather than risk it. That is, if you have the cash. If you don't, just dial back your plans to expand and hire.
It's the same analysis regardless of who is making the investment decision: entrepreneur, angel investor, venture capitalist, Fortune 500 CFO. When taxes are higher, there is less capital available to start and build smaller companies.
Our only shot at achieving fiscal balance is growth. Given that, does this focus on raising tax rates make any sense at all? These tax increases are essentially taxes on economic growth and job creation.
Raising taxes on investment is like building a pitcher-friendly park and keeping the infield grass long: You better plan on low-scoring games.
Drew Graham
St. Petersburg, Fla.

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