Wednesday, June 1, 2011

Tax cuts = jobs? Sez who???

We've all heard the Republican mantra: "You can't raise taxes on the very people who are creating jobs in America— the small businesses!"

Let's put on our CTGs (critical thinking glasses). First, let's look at the numbers.

US unemployment rate
1995 5.6 1999 4.2 2003 6.0 2007 4.6
1996 5.4 2000 4.0 2004 5.5 2008 5.8
1997 4.9 2001 4.7 2005 5.1 2009 9.3
1998 4.5 2002 5.8 2006 4.6 2010 9.6
US Bureau of Labor Statistics

Notice how the unemployment rate rose by 1.1% the same year that the Bush Tax Cuts took effect. Notice how they haven't come down much since. I know. The Republicans will blame that on 9/11, the assault on the traditional family, or gun control, but the numbers don't lie.

You may be surprised to learn that the Small Business Administration defines small businesses as those making annual receipts anywhere from a few thousand dollars to over $35 million in some industries and hiring from a few to 1500 employees.

So, let's talk to a "small business man." From 1996 through 2008, I co-owned a small business. We never broke a million dollars in sales, and in our best year, we had two full-time employees. We were incorporated as an "s-corp," which among other things meant we were responsible to pay personal income taxes on the company's profits. 

My business partner and I got into the habit of having our accountant project our tax liability each year in November. Then, we would spend like crazy so that by the end of the year, we wouldn't have as much of a profit on which to be taxed. We invested that money in equipment, software, marketing, and when we could justify it, we invested it in people.

Bottom line? If the choice is paying company profits to the government or investing it in the company, I think most business owners would choose the latter. Of course, when the Republicans offer a third choice— take the money and run, that's what will happen. So much for adding jobs.

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