Small business 101

Writes one Lowell Simon of Seven Lakes, NC, in a letter published by The Pilot in its Dec. 10 editions, “Can someone please point me to a third-party source that says the GOP tax plan will help small businesses?”

Our gut reaction is to answer his question with one of our own. Can someone please identify a third-party source that says a GOP tax reform bill will hurt small businesses, or for that matter, corporations or individual taxpayers? One third-party who explained this concisely came quickly to mind. He had this to say about cutting federal taxes, in general:

An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget — just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions.

This third-party message was delivered in December 1962 by President John F. Kennedy. The Democrat Party JFK was affiliated with was so dramatically more centrist than today’s far-left Democrat Party, surely we now can accurately identify JFK as a third-party voice.

Mr. Simon might agree or disagree with this premise, but we’re fairly certain as to what he’d ask next. “What does this philosophical viewpoint have to do with tax reform helping small businesses entering 2018?” Answer: It has everything to do with an improved economic outlook for small business owners, employees and customers, which is what the pending tax reform bill being debated by Congressional Republicans will accomplish over time.

Small business owners are essentially self-employed individuals. Their income is not taxed as if they are an entity, such as a corporation. Their profit is their income and is taxed at individual rates, known as pass-through taxation, within their household federal tax return. Unlike an independent contractor (such as a lawyer or tax advisor), small business owners contemplate their after-tax income more broadly. If it’s a start-up small business, the owner often contemplates allocating some of his income back to the business. Perhaps a new piece of equipment is needed. Perhaps he wants to launch a radio ad campaign to raise awareness of the new business. Most small business owners do not think of a tax break as the government “lining their pockets”.

So, back to the question, how do the GOP tax reform bills (one passed by the House; the other passed by the Senate) help small businesses? Without getting into the weeds of when or if a small business owner qualifies for pass-through taxation (assume the mom-and-pop businesses and franchised stores you frequent in your community do), here is a third-party overview by the Director of Investment Planning for The Motley Fool, Dan Caplinger:

The Senate decided to give small businesses a tax break by offering their owners a deduction on a portion of the income that passes through to their individual tax returns. Under the final proposal, qualifying business owners will be able to deduct 23% of their pass-through income on their tax returns, subject to a limit of 50% of wage income in order to prevent potential abuse.

Rather than offering a deduction, the House suggested changing the tax rate that applied to the business income that pass-through businesses generated. A maximum tax rate of 25% would have applied to pass-through income, but limitations would have treated 70% of income as wages at the full ordinary tax rate unless a business could prove that a different percentage was appropriate. An even lower rate of 9% would apply to businesses earnings less than $75,000. Professional services companies, such as those operated by lawyers and accountants, would have been excluded from the preferential rate entirely.

It is obvious, to some, that either approach would be a welcome benefit to the small business owner, who heretofore might have seen his total household income (business income plus, as an example, a spouse’s income as a school teacher) taxed at 35%.

We mention that help being contemplated for small businesses is obvious to some because yet another third-party report on the subject, by the polling agency SurveyMonkey, finds that small business owners who identify as Democrats dispute the merits of the tax reform bills:

For those small-business owners who identify as Republicans or who lean toward the GOP, tax reform couldn’t come soon enough. A huge majority (85 percent) supports the passage of the tax reform. These data come from the newest CNBC/SurveyMonkey Small Business Survey, conducted Nov. 20–Dec. 4 among 2,043 small-business owners.

Democratic-siding small-business owners take a harder line. Eight in 10 (80 percent) oppose the tax reform proposals, and they do not mince words when asked about their thoughts. “Unfair” is the most frequently mentioned single-word response, but “rich” and “wealthy” come up frequently in longer responses, as in, “It’s not a reform, it’s a tax cut for the wealthy.”

The ideological polarization that defines 21st Century America apparently is so entrenched that even some small business owners would forgo tax relief in order to stop “big (evil) corporations” from seeing relief from burdensome taxation as well.

So misguided is this logic that we must harken back to the words of American economist Walter E. Williams, cited by this blog in October. Wrote Williams, explaining the crippling impact of our nation’s 38.91% tax on corporate earnings (proposed to be reduced to 20% by both pending bills):

If a tax is levied on a corporation, it will have one of four responses or some combination thereof. It will raise the price of its product, lower dividends, cut salaries, or lay off workers. In each case, a flesh-and-blood person bears the tax burden.

 

 

Taxing distortions

In a Twitter post, North Carolina Sen. Thom Tillis this week called out a Washington Post reporter’s visit to Burlington, NC, where he sought to demonstrate that pending Republican legislation to cut taxes and liberate businesses offers little relief to the little guy. The premise of the Post report is that the state’s tax cutting endeavors have done next to nothing to help small business so, by extension, federal tax relief is likely to have minimal impact going forward.

The Post obviously assigned the reporter to find a rural business owner who is, for whatever reason, an unhappy camper in a state where many businesses are thriving, and into which new businesses are relocating.

The extremes to which the Left is going to stop the unleashing of the full potential of the American economy is not limited to the corrupt mainstream media. It is seeping into our own community.

Apparently, it is the policy of our local liberal house organ, The Pilot newspaper, to allow a reader to submit a letter-to-the-editor that does little more than regurgitate extreme Left Wing talking points. There is scarcely a thread of truth in this missive by the misinformed Ms. MeNeish. She laments over “a few years of tiny (tax) cuts”. About half the U.S. population pays no federal or state taxes, thus can not be granted a “cut”. The highest producers (in the 39.6% bracket) are not likely to see a federal tax cut, even a tiny one, and some very high earners might find themselves in a new 45% bracket, pending the final terms of the bill. The author also claims tax reform will “make it harder for young people to go to college”. This obviously is drawn from warnings by people such as University of North Carolina President Maragaret Spellings who oppose the removal of tax deductions for private giving (to schools such as UNC). But why does she assume that, for example, a UNC alum who owns a successful business, would not give more to the school as his tax burden declines, even absent a deduction for his charitable activity? This seems to suggest that her alums care little about the institution but give only to add a deduction to their filings. Quite an insult. How, you ask, does the elimination of private giving deductions “make it harder for young people to go to college”? Because the Left accepts that tuitions must continue to skyrocket and, thus, youngsters will need academic scholarships more than ever. Left unsaid is that many of these scholarships go to students who are not U.S. citizens.

Ms. MeNeish also wrings her wrists about tax reform burdening “our children and grandchildren with more than $1 trillion in addtional federal debt.” This is based on models that are typically inaccurate and on the smear campaign now being waged by billionaire investor Tom Steyer, who writes this week in the Wall Street Journal that tax cuts for “the wealthy” will be “paid for with money taken out of the pockets of working Americans and their children.” This outlook defies the outcomes of the economic impact of the last sweeping reform, under President Reagan in 1986, which handed President Clinton a booming economy throughout the 1990s. Projected debt increases under the current government spending trajectory — apart from tax reform becoming reality — far exceed $1 trillion over the next decade (the Congressional Budget Office estimates $10 million). Easy to dismiss, apparently. But, worse, her misgivings also conveniently ignore the $9 trillion in federal debt added during the eight unchecked years of spending under President Obama. Are her children and grandchildren somehow unscathed by Obama’s reckless legacy?

Tale of ‘The Tape’

The markets referred to daily in the financial press are composed of Wall Street trading on regulated stock exchanges, less formal Over the Counter (NASDAQ) markets, organized commodity exchanges worldwide, and specialized trading in major financial centers across the globe.

Old timers often refer to price reporting as “the tape”, a reference to a 19th century telegraphic system that reported individual security transactions. By extension, one “fighting the tape” meant going against factual trends (i.e., the markets are poised to remain positive) because he presumes to be better informed. This also would be known as a contrarian.

In a vast industrial sector, price levels are indicative of anticipated corporate performance. Recent markets that have risen to record breaking levels have given huge thumbs up to GOP economics and the leadership of President Donald J. Trump.

High speed electronic data transfers have sent Edison’s ticker tape to museums. Modern trading desks are where authority to assume billions of dollars of risk is granted to alert young people who may not have reached their 30th birthdays.

Many believe the free market performance in a competitive marketplace driven by perfect competition is the most reliable indicator of future pricing of equities and commodities. Perfect competition is defined as the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent, and the market price of a commodity is beyond the control of any single individual buyer or seller. It is a classical economic theory.

The world’s trading in wheat, crude oil, strategic metals and international markets for a nation’s currency, provide spot pricing (today) or a fixed future price defined by delivery at distant point of time. A user of cotton, for example, will set his raw material cost by purchasing a given amount of the commodity at a fixed price for future delivery. Sellers of cotton, farmers for example, eliminate market risk by selling their anticipated production for future delivery.

There are many investors who enter the market as speculators and their risk is their own capital based on an individual analysis of market conditions. Publicly traded stocks anticipate corporate earnings and dividends and a rising equity price indicates belief in an enterprise’s growth over time. Collective wisdom, many economists believe, has a superior predictive capability.

So, today’s “tape” is saying that tax reductions, less regulation and decentralization of decision making is good for most Americans. Anticipated growth seems to be a more laudable goal than redistribution, espoused by the left.

Let’s turn to the anti-Trump political climate that emanates from believers in progressivism. They believe so strongly in government control they are unrealistic in their analysis of public data. They are fighting the tape.

The Trump assertive leadership, while something new to Washington, has found favor among Americans. Wall Street performance says so and all the tales of gloom and doom from the disciples of the FDR New Deal and the Johnson Great Society are clearly backward looking using faulty economic logic. Similarly flawed logic was expressed, ahead of Trump’s election, by Pulitzer Prize-winning New York Times columnist Paul Krugman, who predicted that a Trump victory would trigger an economic collapse from which the United States might never recover.

Current Democrat party leadership has adopted a policy they have called “The Resistance.” This is proving to be not very useful thinking to combat international threats stirring in North Korea and Iran to world peace and prosperity. It is a policy risk that is devoid of constructive thinking at a time when it may be clear to voters that policy changes are urgently needed.

The party of Sen. Chuck Schumer (D-NY), California Gov. Jerry Brown, and Rep. Nancy Pelosi (D-CA) is not the party of FDR, Kennedy, or even Barack Obama. It offers no ideas about production and preaches consumption with fairness predicated on a system that buries individual responsibility.

American success is due to creative individuals who shoulder responsibility, show up on time and take pride in a job well done. Collective performance leads to collective prosperity. Yet the Democrat Party continues fighting the tape.

– Walter B. Bull, Jr.
 

Reform terrifies tax addicts

High profile individuals in American society when caught engaging in criminal, deviant or unethical activity disappear into rehab programs, hoping to recast themselves as victims. Addicts are sympathetic figures, the thinking goes.

But how are we to feel about addicts who won’t/can’t seek treatment? In the case of tax addicted Washington politicians on the left, they should be judged as scoundrels, at the very least. How else to characterize tax-and-spend zealots such as Sen. Elizabeth Warren (D-MA), who says the Trump administration’s proposed tax cuts are “just plain immoral.”

Warren and her fellow tax revenue addicts break into sweats at the mention of tax cuts like alcoholics hearing suggestions of a return to Prohibition. They always fall back on the same tired rant. Tax cuts benefit only the richest Americans and give little relief to working class citizens (as if Warren, Senate Minority Leader Chuck Schumer, et al, actually know any such people). Corporate tax cuts only enrich the titans, not the factory workers. On and on they drone.

That’s why Republicans need to do a better job when it comes to promoting the actual effects of the tax cuts they propose under President Trump. They need to be very specific about the objectives of cutting taxes by drawing on jaw dropping data neatly summarized by columnist Walter E. Williams writing for DailySignal.com, “The Facts About Who Pays the Most in Taxes in America”.

Thirty-seven million tax filers have no tax obligation at all. (That’s 45.5% of American households). … These Americans become natural constituencies for big-spending (Democrat) politicians. After all, if you don’t pay federal taxes, what do you care about big spending?

But the average hard working American typically does not fixate on federal spending and national debt. That’s Washington insider stuff. Working class Americans want a path to higher wages and upward mobility within their chosen industry. The surest way to make that a realistic goal is to ease the tax burden on American corporations.

Williams deftly points out that the current 38.91% tax on U.S. corporate earnings, the fourth-highest in the world, is a tax on living, breathing people. A corporate tax cut potentially has more impact on a middle-class family than a tax cut on its take-home pay. Democrats refuse to acknowledge this because, of course, the narrative must always be that corporations are evil.

If a tax is levied on a corporation, it will have one of four responses or some combination thereof. It will raise the price of its product, lower dividends, cut salaries, or lay off workers. In each case, a flesh-and-blood person bears the tax burden.

The messaging is really simple. President Trump and fellow Republicans must not be trapped into using empty jargon when talking about tax reform.

More than 45% of American households pay zero federal income tax. Just say it. Less than 1% of the population, according to data Williams cites, pays 70.6% of federal income taxes. Just say it, while advocating for some relief for these folks, too. But most importantly, just say that a significant corporate tax rate cut from about 39% to 20% will open floodgates of higher wages and greater upward mobility for working class Americans.

If passing real tax cuts means that scores of Congressional Democrats disappear to enter fiscal rehab, just think of what that would do to ease gridlock in Washington.

Ceiling and dealing

The most optimistic among Republicans are anxious for September’s arrival, believing their efforts to bring about tax reform and personal and business tax cuts will succeed where similar heavy lifting to repeal and replace Obamacare failed.

Obamacare had become an entrenched entitlement in very short order, leaving many Republicans talking out of both sides of their mouths. GOP lawmakers showed little to no spine when it came time to act. In the case of tax reform, they are likely to hear from throngs of constituents who feel strongly that swift and significant cuts and simplifications are long overdue. Repealing Obamacare carried the threat that some would “lose” healthcare coverage (albeit unaffordable coverage). Tax cuts are about meaningful gains for ordinary working Americans, not loss. Continue reading “Ceiling and dealing”