A Confession

[Charlie Page]

Charlie did you read Jeff's post?

It looks like you didn't.

Sharon, I did read, do understand and agree with Jeff’s post. Most small business won’t be paying more taxes. My previous post was addressing the topic of higher taxes more on a macro level rather than looking only at small businesses. How increased taxes on companies making more than 250k will affect all of us in one way or another.

Bigger companies who make more than 250k will pay higher taxes. Many of these big companies, if not all, are organized as C corporations. The income in C corps does not pass through to the owner as does income from S corps or LLCs. C corp is a separate legal entity and taxed as such.

Generally speaking, the objective of most companies, whether big or small, is to maximize their value. This can mean many things to small business, but increasing shareholder value for C corps usually means managing the business to maximize earnings and increase their stock price.

What happens when the C corp pays higher taxes? Unless they increase the price or lower the cost to produce or procure their products (finding ways to be more efficient or do more with less) the additional tax has the effect of lowering earnings which lowers shareholder value through a decrease in dividend or lower stock price.

If they increase their prices, this cascades all the way through the supply chain including when Joe buys materials from Home Depot. As a result, Joe charges you more to do the work.

If they become more efficient and do more with less, there’s a down-side to that as well. Maybe they have fewer workers to achieve the same output, maybe they import more from China or wherever, maybe they put off investing in their company, maybe they reduce or cut employee benefits, etc. Wal-Mart has mastered doing more with less. Think of what this has meant for their employees.

If they simply pay the higher tax and don’t increase their price or cut their cost, this lowers earnings which negatively affect shareholder value. Who are the shareholders? You, me and anyone who has a 401k or other investments in stock either directly or indirectly.

Is the solution for Joe to buy more materials from small business and less from the Home Depots of the world? Maybe, but even small businesses have to buy from big companies at some point. Those big companies buy the inputs to their products from other big companies and so on up the supply chain. Soon, the entire supply chain is paying more to make or procure their product and, ultimately, passing those costs on to the consumer.

The bottom line is that CEO’s will manage their corporation to maximize shareholder value. The additional tax C corps pay will somehow have a direct negative effect our everyday life whether they choose to increase prices or do more with less or some combination of the two.

[Brian Pedaci]

When those taxes were lowered by Bush, did those companies lower their prices accordingly?

Does increased cost to mega-corps give a small, independent retailer a leg up? Is that a good thing or a bad thing?

[Charlie Page]

Companies lower their prices for a variety of reasons including competitive pressure. Some keep them the same and some raise their prices citing increased costs, etc.

Even independent retailers must buy something from big companies at some point. However, small independent retailers provide better customer service. I can’t tell you how many times I've asked a question at Home Depot and they look at me like I have a third eye. You go into Lakewood Hardware and they have the answer and if they don’t, they’ll get it for you. WOW

[ryan costa]

in the books "the Great American Deception" and "Greenspan's Fraud", Dr.Ravi Batra shows that rapidly rising Social Security taxes have hurt small business more than any of the taxes Reagan lowered helped small business. The social security tax is essentially an ultra-regressive income tax that is pilfered to mask the Reaganomics deficits. His data cites official government records. It is hard to imagine why no one would pay for advertising on a television news program which reports this information.

Batra also shows that lowering top tier income taxes and corporate taxes did not increase rates of Investment much or at all. If fact, rates of investment frequently fell as top tiered income taxes and corporate income tax rates fell.

not that it mattered, because Joe the Plumber works for a company whose profits are below what Barack Obama suggested raising tax rates on.

We can't lower progressive income taxes until the Global War on Stateless terror is over, the War on Drugs is won, and America has some level of energy independence. We'll know that happens when the news tells us the war on terror is over, the war on drugs is won, and we are energy independent.