Bush and Kerry on the issues: Taxes

[argentine soccer fan]

Here are their positions, according to AP:

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20040914/ap_on_el_pr/on_the_issues&cid=694&ncid=1963&sid=96378798

Sure, this is not as sexy as boat people, fake documents, or Kitty Kelley, but what do you guys think about the candidates ideas?

I find it interesting that Senator Kerry says that he will cut taxes for small businesses which are struggling with the cost of health care, and that he will also cut taxes for businesses that create jobs here in the United States. Yet he also says that he will raise taxes for individuals who make over $200,000.00 so we can invest in jobs.

Raise taxes for those who create jobs, so we can invest in jobs?

Errr, Senator: A great number of those 'individuals' who make over $200,000.00 are those same small business owners who are struggling with the cost of health care and whose businesses create jobs here in the United States. So will you cut or raise our taxes? You can't have it both ways.

[stopper4]

If their business are incorporated, he can raise taxes on their individual owners while lowering taxes on the corporations themselves.

But if he keeps Bush's dividend tax cuts, I think companies will use their tax savings not to hire more employees or give them health care, but to pay out more of their profits to their owners in the form of dividends.

[IntheNet]

Errr, Senator: A great number of those 'individuals' who make over $200,000.00 are those same small business owners who are struggling with the cost of health care and whose businesses create jobs here in the United States. So will you cut or raise our taxes? You can't have it both ways.

Exactly right argentine soccer fan... Mom&Pop type businesses, as well as individual small business owners, would be hard hit by Kerry's pro-tax plan... the real tax cuts proposed and enacted by George Bush are more productive for employment growth... as usual, Kerry is trying to appeal to both low and high income taxpayers and he will end up alienating both with his financial plan...

[argentine soccer fan]

If their business are incorporated, he can raise taxes on their individual owners while lowering taxes on the corporations themselves.



I am not sure about the exact statistics, but most small businesses are sole propietorships or partnerships or LLC's or 'S' corporations, in which case the owner is taxed for the profits of the business, regardless of how much income he takes out of it.

So, here is my question. Let's take an example: If a small business, (say an S corporation valued at 2 million), makes slightly over $200,000.00 in profit in a year, and the owner takes out $50,000.00 as personal income and reinvests the rest in his business, presumably creating more jobs, is the senator saying that he will raise or lower that person's taxes?

[argentine soccer fan]

But if he keeps Bush's dividend tax cuts, I think companies will use their tax savings not to hire more employees or give them health care, but to pay out more of their profits to their owners in the form of dividends.

If companies behaved as you describe, we wouldn't have a ********ing Starbucks in every corner. (Wait, maybe that would be a good thing.:D)

[Chris M.]

I am not sure about the exact statistics, but most small businesses are sole propietorships or partnerships or LLC's or 'S' corporations, in which case the owner is taxed for the profits of the business, regardless of how much income he takes out of it.

So, here is my question. Let's take an example: If a small business, (say an S corporation valued at 2 million), makes slightly over $200,000.00 in profit in a year, and the owner takes out $50,000.00 as personal income and reinvests the rest in his business, presumably creating more jobs, is the senator saying that he will raise or lower that person's taxes?

A more important question is this. There is this 22 year old kid from a moderatly wealthy family -- I say moderately wealthy because his five trust funds put together only provide him with about $570,000.00 in income -- not the millions his friends assume. Anyway, in one wild drunken weekend, he spends the equivalent of the annual interest of one of his trust funds in Monoco where he eventually gets arrested for assaulting the bell boy at the Ritz, and challenging him by saying, "you wanna work for me someday froggy? huh, do ya, do ya, do ya?" His Father wires him some bail money from an off-shore trust account established with him as the beneficiary at a Cayman Islands address. Will Bush's tax cuts affect the money drawn on the Cayman's account?

:D

[Nutmeg]

Just out of curiosity, does anyone know what impact the Bush tax cut has had on Federal revenue? Have revenues gone up or down since the tax cuts were put in place?

[argentine soccer fan]

A more important question is this. There is this 22 year old kid from a moderatly wealthy family -- I say moderately wealthy because his five trust funds put together only provide him with about $570,000.00 in income -- not the millions his friends assume. Anyway, in one wild drunken weekend, he spends the equivalent of the annual interest of one of his trust funds in Monoco where he eventually gets arrested for assaulting the bell boy at the Ritz, and challenging him by saying, "you wanna work for me someday froggy? huh, do ya, do ya, do ya?" His Father wires him some bail money from an off-shore trust account established with him as the beneficiary at a Cayman Islands address. Will Bush's tax cuts affect the money drawn on the Cayman's account?

:D

Chris, I think that my hypotetical is much more common in America than yours, and it is much closer to my own reality. It is much more relevant to me as a voter, and I suspect also to a lot of other voters who are small business owners.

[GringoTex]

So, here is my question. Let's take an example: If a small business, (say an S corporation valued at 2 million), makes slightly over $200,000.00 in profit in a year, and the owner takes out $50,000.00 as personal income and reinvests the rest in his business, presumably creating more jobs, is the senator saying that he will raise or lower that person's taxes?
Bad model. A business that turns $200,000 a year profit does not have the capacity for $150,000 worth of annual "reinvestment."

[argentine soccer fan]

Just out of curiosity, does anyone know what impact the Bush tax cut has had on Federal revenue? Have revenues gone up or down since the tax cuts were put in place?

That is a very interesting question. In theory, there should be a point of equilibrium, at which an increase in taxes decreases revenue and a decrease in taxes also decreases revenue. (Just as there is a point at which an increase in a product price or a decrease in product price decreases revenue for a business.) The question which economists dissagree is where that point is. The debate is whether or not we are at that that point which maximizes tax revenues. I think most economists would argue that at the point in which we are now, a decrease in taxes will not increase federal revenues but an increase in taxes probably would. A minority of economist would probably argue the opposite.

Of course, in practice there are a lots of other factors which affect the economy, so just because revenues went up or down doesn't necesarily validate any economist opinion. That is the problem with the science of economics.

And, regardless of whether or not it increased revenues, I think most economists agree that, at least in the short term, the Bush tax cuts did stimulate the economy, at a time when it was badly needed, because of the dot.com boom which went bust and because the country suffered a terrorist attack. However, most economists would say that additional cuts at this time, with the economy in its way to recovery, would not have the same effect.

Personally, I think it would be interesting to try a theory that I have come up with, in which taxes are used a bit as economic modifiers, much as we do with changes in interest rates. Within certain parameters, we could have the fed lower taxes a bit when the economy is slowing down, and raise them a bit when the economy is growing too fast. But I think such an idea would be politically impossible to implement. Neither the left nor the right would accept something like that.

[GringoTex]

Just out of curiosity, does anyone know what impact the Bush tax cut has had on Federal revenue? Have revenues gone up or down since the tax cuts were put in place?
Revenues have gone down slightly.

http://taxpolicycenter.org/TaxFacts/tfdb/TFTemplate.cfm?topic2id=90

[argentine soccer fan]

Bad model. A business that turns $200,000 a year profit does not have the capacity for $150,000 worth of annual "reinvestment."

Unless, of course, you had an unusually good year, and you are trying to attract some large chain store buyers, and need the additional capital to be able to even attempt to do so.

(Man, can't you tell by now that I am talking about a real business, not a hypotetical one? The figures are not exact, but it is my business model I am using)

BTW: I hired two new people this month. So, I am doing my part for helping the economy.

[argentine soccer fan]

Revenues have gone down slightly.

http://taxpolicycenter.org/TaxFacts/tfdb/TFTemplate.cfm?topic2id=90

Thanks.

So, a slight decrease. That would be consistent with a model which I tend to agree with. I think that the reason revenues went up during the Reagan years is that the taxes were at a higher place to begin with, when he cut them. Now I think that we are below the point of equilibrium, which means a decrease in taxes should be matched with a decrease in federal spending. Otherwise, we better pray for another technology boom.

But of course, there are a lot of other outside factors which make any model impossible to prove right or wrong.

[superdave]

Yet he also says that he will raise taxes for individuals who make over $200,000.00 so we can invest in jobs.

Raise taxes for those who create jobs, so we can invest in jobs?

Errr, Senator: A great number of those 'individuals' who make over $200,000.00 are those same small business owners who are struggling with the cost of health care and whose businesses create jobs here in the United States. So will you cut or raise our taxes? You can't have it both ways.
This is just fatuous. Yes, there's some overlap in the Venn diagram. How much? Answer that question, then come back to me.

[argentine soccer fan]

This is just fatuous. Yes, there's some overlap in the Venn diagram. How much? Answer that question, then come back to me.

Well, there is...me.

You don't think I consider that to be relevant?

[John Galt]

I am not sure about the exact statistics, but most small businesses are sole propietorships or partnerships or LLC's or 'S' corporations, in which case the owner is taxed for the profits of the business, regardless of how much income he takes out of it.

So, here is my question. Let's take an example: If a small business, (say an S corporation valued at 2 million), makes slightly over $200,000.00 in profit in a year, and the owner takes out $50,000.00 as personal income and reinvests the rest in his business, presumably creating more jobs, is the senator saying that he will raise or lower that person's taxes?
While your hypo is relatively vague, I am going to go with "LOWER." The reason is that Kerry will provide incentives for you to provide health care to your employees and give you a bigger tax break when you do so. If your business meets incentives to keep work here instead of offshore, your business will get a tax break. Assuming your accountant agrees with you that you only have 50k in income, your taxes will not change as the middle class tax changes will not be affected by Kerry. Finally, at some point your tax dollars will stop going to pay for the deficit and the wasteful war in Iraq, and therefore will be used more efficiently. Given the economic growth, your profits will likely increase, which, if you continue to put it back into your company, will continue to reap rewards for you and your employees.

If you want the Bush tax break, instead of reinvesting in your company, you will need to cut health care benefits for your employees, pay yourself the leftover profits in the form of a dividend, reinvest that money in the stock market or with a large financial services firm instead of your own company, and eventually sell off the assets of the company.

Yeah, that's a little over the top hyperbole, but the fact is that Bush's policies reward wealth not work, and your question related to funneling your money back into work, not wealth, so I think Kerry's plan is right for you (Edwards's plan would have been designed with you in mind).

[superdave]

Well, there is...me.

You don't think I consider that to be relevant?
Right, so this overlap is important to YOU PERSONALLY. I get that. But to try to dress up your individual concern as some kind of overarching hypocrisy on Kerry's part is weak.

[argentine soccer fan]

Finally, at some point your tax dollars will stop going to pay for the deficit and the wasteful war in Iraq...

Are you sure about this? Because to me it seems that neither President Bush nor Senator Kerry really addresses the deficit with their plan. And especially I think that is true of the senator's plan, with his way of thinking which includes using Taxes as a tool for social intervention. (Although, Bush himself holds a surprisingly liberal view on social spending for someone who is considered a right-wing conservative.)

And as far as Iraq, I know we are spending a lot of money, but from a standpoint of the deficit and as a percentage of overall government spending it is not a big factor, really.

One way or the other, we better hope for a new technology boom to bail us out once again, because neither candidate has a plan to reduce the deficit.

[Northcal19]

Are you sure about this? Because to me it seems that neither President Bush nor Senator Kerry really addresses the deficit with their plan. And especially I think that is true of the senator's plan, with his way of thinking which includes using Taxes as a tool for social intervention. (Although, Bush himself holds a surprisingly liberal view on social spending for someone who is considered a right-wing conservative.)

And as far as Iraq, I know we are spending a lot of money, but from a standpoint of the deficit and as a percentage of overall government spending it is not a big factor, really.

One way or the other, we better hope for a new technology boom to bail us out once again, because neither candidate has a plan to reduce the deficit.

It won't be a tech boom that bails us out, it will once again be a Democrat. And you cannot lay that deficit on Kerry's doorstep because it is entirely a result of Bush's tax cuts for the super wealthy and the war in Iraq. Don't you Republican's read history?

I did like your earlier discussion, because I also run a smallish business. We have benefited in windfall proportions from Dubya's borrowing from our grandchildren. I gave most of my windfall to Kerry, though some went to educational institutions.

First, if you make $200,000 don't pay yourself $50k. Soc serc quits at $84,000 and you can take a draw that isn't taxed on payroll basis. You could also consider buying items needed next year(expensing) things late in the current year to reduce your profit, or investing in depreciable assets. Under Dubya's plan about the worst thing you can do is actually hire someone. BTW, if you are in the black $200k, and pulling down $50,000 then GWB is not your friend. You are just subsidizing his actual owners.

[argentine soccer fan]

First, if you make $200,000 don't pay yourself $50k. Soc serc quits at $84,000 and you can take a draw that isn't taxed on payroll basis. You could also consider buying items needed next year(expensing) things late in the current year to reduce your profit, or investing in depreciable assets. Under Dubya's plan about the worst thing you can do is actually hire someone. BTW, if you are in the black $200k, and pulling down $50,000 then GWB is not your friend. You are just subsidizing his actual owners.

Thanks. Actually, 50K was a hypotetical, but I am taking less than 100K. I don't take more because I am already taking more than what I need and I have big plans for the future for my business so I'd rather leave the money there. If (and that is a big if) I can do as well for a couple more years, I will make sure to take out a lot more. (but certainly not to give it to a political campaign :D I'd rather give to an orphanage if I give.)

Back to the candidates: I am not blaming Senator Kerry for the deficit, how could I? My point is that his plan doesn't address the problem, because he is planning to increase spending in many areas, and in exchange all he offers is a raise on those who make over 200K. But taxes on the rich are overrated in the president's tax cut. The facts are that much of the decrease in the taxes payed by 'the rich' in the past four years came about because they suffered (proportionaly) more than other groups loss of revenue due to the technology bubble burst, rather than because of the Bush tax cuts.

A tax increase only on the rich will not offset the increases in spending, on expensive programs like healthcare, which senator Kerry proposes. His plan does not address the problem anymore than the President's plan does. They are both ignoring the problem, that is my point.