Speaking as a business owner about taxes

[Gokul43201]

Some businesses will pass on the increase to the customer and others won't.

I believe this is all that Ivan was asserting. So the statements made by the two of you are not mutually exclusive.

 

[Jimmy Snyder]

I believe this is all that Ivan was asserting. So the statements made by the two of you are not mutually exclusive.

Not mutually exclusive, but very much different. He implies that it's ok to raise taxes because some businesses won't pass on the tax to their customers and besides, taxes are not his biggest problem. I sympathize with his other problems but raising taxes will only add to them, not relieve them.

 

[mheslep]

I looked over the article you posted, but I missed the part where the money for taxes comes from a pocket other than the customer. Can you point it out to me? Near as I could tell, the word 'tax' isn't found in the article at all.

For the "money [to come] out of the customer's pocket", a business suffering new taxes has to pass that on by first raising the price to the consumer. Elasticity means raising the price is not always an option.

 

[mheslep]

Of course it does. Some businesses will pass on the increase to the customer and others won't. Small comfort to me that the candlestick maker swallowed the loss while the butcher and the baker did not. The premise that increased taxes on business won't hurt the consumer because some businesses won't pass on that increase is ridiculous.

Well I expect you mean 'hurt' the consumer in direct and indirect ways here. I agree raising taxes on business have an impact on the economy, as I posted originally, no question. It just may not effect the consumer at the butcher/baker's directly if the candlestick maker lays off a few people or even goes under.

 

[turbo]

As a small-business owner (single-person consulting firm) I can confirm some of Ivan's experiences. Taxation was a heavy but predictable burden. The largest drag on my companies was endless paperwork and lost production-time caused by state and federal mandates on small businesses. Large businesses wave this stuff off. Small businesses have to learn to deal with it or die.

When you are self-employed you have to pay all of your contributions to SS, and you have to pay that and your income taxes quarterly and IN ADVANCE quarter-by-quarter. Get an unexpected fat contract, and you'll be penalized for not properly estimating your income tax. Get an unexpected cancellation for any reason, and the IRS sits on your estimated tax payments, all fat and happy. Want to change the tax code? I suggest making the code so simple that owner-operator businesses can start up and run without being choked out by big businesses and their slaves in DC.

 

[Hurkyl]

Want to change the tax code? I suggest making the code so simple that owner-operator businesses can start up and run without being choked out by big businesses and their slaves in DC.

Slaves?

 

[turbo]

Slaves?

OK, bribed "public servants" that do the bidding of their masters, to the detriment of you and me.

With the recent SCOTUS decision re: political advertising, it's going to get a lot worse, real soon.

 

[SystemTheory]

I agree that lower taxes are no panacea. I expected the financial system to blow up sooner or later when Bush cut taxes after 9-11 and we were in recession. During a recession there is usually an excess capacity in the economy so what is the point of cutting taxes on a wealthy business owner? The tax cut won't produce a job until demand picks up.

You don't always produce/sell more goods just because taxes are lower. Sometimes you get a Hedge Fund growth industry that buys/sells debt contracts like used car salesmen fueled by easy money, perverse executive compensation packages, and low capital gains taxes ... until the bad paper covers the system and causes the policy-driven bubble to implode.

Over on the site Understanding Money it is said that the net private financial worth is equal and opposite to the base money supply + governmnet debt. I never understood this properly until recently:

(G - T) = (S - I)

which means in a calendar year the government must sell treasury debt in the amount (G - T) of spending minus tax revenue. If there are no net imports, then this is equal to net financial savings S minus investment I made by the public. Thus if the private sector wants to have net savings the public sector must go into debt. It would make no sense for the government, with the franchise to print money, to have a bank account or run a long term surplus, because this only reduces the wealth of the private sector.

When a bank loans money to someone no net financial worth is created since the transaction involves a debit and a credit on private sector books. This process of the banks issuing loans on existing assets means the private sector becomes more debt-saturated. It is all a very complex system and I have no confidence whatever in the "one trick ponies" who think lower taxes is the primary lever to pull to fix economic ills.

 

[WhoWee]

I agree that lower taxes are no panacea. I expected the financial system to blow up sooner or later when Bush cut taxes after 9-11 and we were in recession. During a recession there is usually an excess capacity in the economy so what is the point of cutting taxes on a wealthy business owner? The tax cut won't produce a job until demand picks up.

You don't always produce/sell more goods just because taxes are lower. Sometimes you get a Hedge Fund growth industry that buys/sells debt contracts like used car salesmen fueled by easy money, perverse executive compensation packages, and low capital gains taxes ... until the bad paper covers the system and causes the policy-driven bubble to implode.

Over on the site Understanding Money it is said that the net private financial worth is equal and opposite to the base money supply + governmnet debt. I never understood this properly until recently:

(G - T) = (S - I)

which means in a calendar year the government must sell treasury debt in the amount (G - T) of spending minus tax revenue. If there are no net imports, then this is equal to net financial savings S minus investment I made by the public. Thus if the private sector wants to have net savings the public sector must go into debt. It would make no sense for the government, with the franchise to print money, to have a bank account or run a long term surplus, because this only reduces the wealth of the private sector.

When a bank loans money to someone no net financial worth is created since the transaction involves a debit and a credit on private sector books. This process of the banks issuing loans on existing assets means the private sector becomes more debt-saturated. It is all a very complex system and I have no confidence whatever in the "one trick ponies" who think lower taxes is the primary lever to pull to fix economic ills.

Private sector business loans are often referred to as "leverage". Loosely, it means you borrow against one asset to purchase or create additional assets and grow the business. Businesses borrow and invest to expand revenue and profits.

Often, Government doesn't create anything but a future need for additional funding.

 

[edpell]

Slaves?

How about organized criminals (I mean this only in the Biblical sense, not the legal sense)?

 

[WhoWee]

As usual, the Left leaning participants focus on income taxes ONLY, and the Conservatives consider ALL FORMS of Taxes to be relevant.

 

[SystemTheory]

As usual, the Left leaning participants focus on income taxes ONLY, and the Conservatives consider ALL FORMS of Taxes to be relevant.

The "income" tax is actually a labor tax as it currently operates. A sales tax applies when one purchases actual income (takes goods or services from society).

Bailing out the financial system implosion fueled by low capital gains taxes, lax regulations, and perverse executive compensation incentives is a tax caused by failure to understand how bubbles are generated using leverage. So I would blame the conservative deregulators if your taxes are exploding!

Money and debt have no thermodynamic properties, so they always tend to grow faster than real goods and services. When society grows debt faster than wealth, in today's environment, the logical consequence is either debt-repudiation or quantitative easing.

 

[BoomBoom]

Funny how tax reductions never seem to result in lower prices...

 

[edpell]

When society grows debt faster than wealth, in today's environment, the logical consequence is either debt-repudiation or quantitative easing.

Does "quantitative easing" mean inflation and devaluation of the fiat currency?

 

[SystemTheory]

This is a short propaganda on the benefits of quantitative easing published by the Bank of England:

http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf

In America the Fed is "expanding its balance sheet" which is the same as "quantitative easing." It is giving money to banks and buying assets such as mortgage backed securities, etc. The net result so far is a huge pile of excess reserves being held by the money center banks, with little inflation. This will help the banks de-leverage and keep the inflation in the financial assets, i.e., in the short run it is an effort to re-inflate the bubble and prevent massive asset price deflation, which causes the markets to panic.

In the long run the Fed will try to reverse this historically unprecedented effort, by trying to get employment and wages up, while not generating high inflation in consumer goods, if it can do so. There is a debate among economists today as to how and whether the Fed can reverse these measures.

 

[WhoWee]

The "income" tax is actually a labor tax as it currently operates. A sales tax applies when one purchases actual income (takes goods or services from society).

Can you please explain this - and please factor in the fact that MOST income taxes are paid by the "wealthy".

 

[edpell]

In the long run the Fed will try to ... get employment and wages up, while not generating high inflation in consumer goods

Interesting to hear that the Fed is in charge of employment and wages and not say, the Congress or even the private sector (free market?).

Sic semper tyrannis

 

[IMP]

I just felt like throwing in my two cents.
I do not believe in a tiered tax rate, it is not fair to increase the tax rate of someone (or some company) because they work hard and are successful. I believe in a flat tax for everyone and every company. I think it should be a flat 10% across the board with no deductions or exceptions. The entire tax code could fit on one page!

If I make $1,000,000 a year, I pay $100,000 in income taxes.
If you make $100,000 a year, you pay only $10,000 in taxes.
I paid 10 times as much in taxes as you did, but we both paid the same RATE. This seams like a much fairer idea to me.

 

[edpell]

As supreme court justice Oliver Wendell Holmes put it "law...expresses the beliefs and wishes of the dominant force of the community". I would add likewise with taxes. Fair has nothing to do with it beyond a marketing slogan.

 

[SystemTheory]

Wages are financial compensation for labor. Thus a wage tax is a labor tax. This Wiki is a long list of tax protest cases. This section deals with progressive taxation and labor tax arguments:

http://en.wikipedia.org/wiki/Tax_protester_constitutional_arguments#Progressive_taxation

The Fed is not in control of wages and unemployment per se, but it does need to see a rebound in the real sector of the economy (employment and wage growth) so workers can pay back their leveraged debts to the financial sector and banking community.

The image I have of the economy is the old man behind the curtain in the Wizard of Oz, pulling various levers, and perhaps not really in control of the complex machinery. Look at this forumula again:

(G - T) = (S - I) + (M - X)

where G is spending set by Congress in budget policy, and can include efforts to stimulate job creation via fiscal stimulus, T is tax policy set by Congress but is also function of the economy in terms of revenue collected, S is savings set by consumers and households, I is investment made by financial intermediaries and businesses, M is imports and X is exports.

In a recession the taxes naturally go down, if the government spends money to help support the economy, G goes up, but to keep from dumping all that G into the base money, the treasury sells bonds so that government impact on the banking sector is neutral. This must occur to allow the Fed some modicum of control over the money supply. So there are many levers in action at a given time and no one is in control of the complex system. The "free market" is not free either ... but that's another discussion.

Edit: please note the correction in post #53 by mheslep!

 

[IMP]

As supreme court justice Oliver Wendell Holmes put it "law...expresses the beliefs and wishes of the dominant force of the community". I would add likewise with taxes. Fair has nothing to do with it beyond a marketing slogan.

But who/where/what is this "dominant force" of the community that wishes the current tax scheme would remain unchanged? I honestly don't know a single person who thinks the current tax scheme is fair, or that it expresses their wishes and beliefs. I admit that I only know a couple of business owners, but they express their extreme dissatisfaction at the current tax rate, and the current tax code (which is insanely complicated).

 

[edpell]

I have not heard the private corporation named "The Federal Reserve Bank" express any unhappiness with the current tax system.

 

[mheslep]

...
(G - T) = (S - I) + (M - X)

where G is spending set by Congress in budget policy,

G is all government spending, federal, state, and local.

T is tax policy set by Congress

T is all tax revenue collected by all government - income, sales tax on cigarettes, property taxes, etc.

 

[SystemTheory]

State and local government fiscal and tax policies introduce even more variables in the complex relationship between the real economy and financial sector. In New York and New Jersey, there are dozens of quasi-government Authorities who are empowered to contract for debt which is essentially backed by the taxpayers. But unlike the Federal government the states do not have a treasury/Fed system to effect quantitative easing or monetize the debt, hence the cash crunch is worse at a local level in the meltdown.