To the editor:
Critics claim that the Obama tax proposal would harm large “small business” and stifle economic growth. Is this true?
If you own a small business, it’s probably organized (Sub-chapter S) so its taxes are treated as part of your individual tax return.
Consider then this prospect: You’re lucky enough to be in the 3 percent of “small” businesses making more than $250,000 a year. Presume that your income is $1,000,000 and your profit is $600,000 after you’ve paid your employees and bills. You could put this in your pocket, but you’d have to pay $210,000 in taxes under the current law or $227,000 under the Obama proposal.
The one makes you only slightly less grumpy than the other. Then your CPA reminds you, you have a choice. You could really use a new machine to make more or better thingamabobs. So you buy the new machine for $300,000.
But if the tax bill just passed by the Senate last week becomes law, your business may deduct the entire cost of your new machine this year. You pay about $120,000 less in taxes so you’re out only $180,000 for a $300,000 machine.
So, your business becomes more valuable because of your new asset, and next year you presumably will make even more money. The economy benefits because you may need to hire a new employee to run your machine. And you still pay yourself almost $200,000 this year.
So explain again, how is the Obama proposal harmful to small business?