Why John Kerry's tax increase will cost jobs
Understanding how the tax system works
JoeUser Forums
According to the US Department of Labor, about 55% of Americans are employed by small businesses. That is, companies with fewer than 50 employees total. And while I don't have the statistics handy, something like 70% of Americans are employed by companies with fewer than 1000 employees.
This is important when one considers who to vote for in the next election. John Kerry has stated that he will raise the taxes on those who make more than $200,000 in income yearly. He is counting on people to imagine that those people are just a bunch of rich guys. You know, those Fortune 500 executives busy screwing their employees no doubt.
But statistically, that's not who they are. While those making $200,000 or more per year only represents 2% of the population, most of them are owners of small businesses. And that $200,000 isn't their salary, per se. It's their company's income.
There are 3 main ways to form a business in the United States. There is the LLC (Limited Liability Corporation), S-corporation, and C-corporation. Most small businesses are formed as either LLCs or S-corporations. From a tax point of view, the principle owner of the company's taxes are integrated with the company's revenue. In theory, this lowers his tax burden. But in practice, it really makes small business at the mercy of the individual tax rates.
When Bush lowered the individual tax rates, in effect what he did is give small businesses a tax break. As a result, these businesses were able to hire more people. That is what happened at Stardock, who operates this site. Without those tax cuts, it's unlikely this site would exist in its current form (i.e. free). The tax cut allowed us to hire an additional person. The same effect occurred across the United States in thousands of small businesses everywhere. Not immediately of course, but gradually as small businesses recovered their losses and then began to build up again.
So what happens if this tax cut is removed? What if someone like John Kerry decides he wants to cut the deficit by some trivial amount by raising taxes on "the rich"? Small businesses will either have to make up those taxes in increased revenue or lay off the people they hired from the previous tax cut.
Tax cuts aren't always the answer, btw. In the mid 90s when unemployment was effectively nil, tax cuts would accomplish little to help the economy. Virtually everyone was employed. But when you're in an economic weak patch, as we've recently experienced, and you're trying to create jobs then the best way to do that is to try to make sure businesses have as much money as they can to hire those people looking for jobs.
And small businesses, by their nature, tend to be more efficient than "big business". Huge corporations tend to be not much more efficient than the government with money. That's why the Bush tax plan targeted individual income instead of cutting corporate taxes. They recognized that if you want to create jobs and get the economy moving that the best bang for the buck is to get money back into the hands of those LLCs and S-corps who are more likely to hire more people than buy a second mansion or something.
Raise those taxes and you're literally sucking capital out of small businesses at a time when job creation should be a priority. And that is why John Kerry's tax increase plan would hurt the economy. And potentially it would even increase the deficit as those people who lose their jobs are no longer paying taxes.
