Blue Mass Group

Reality-based commentary on politics.

(Video) Deficit or no deficit, that is the question

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In a recent letter to the editor of the New Bedford Standard Times I wrote about tax breaks.

The conservative argument is tax breaks create jobs, but according to my studies it doesn’t work.

If I own a tire shop and I sell 100 tires a day and taxed at 30% this year.  Then next year I still sell 100 tires a day but I am taxed at 15%, why would I hire more people?

As a businessman I hire and layoff according to demand, not according to my tax bill.  

Now if I sell 200 tires a day I would hire more people to keep up with demand,no matter what my taxes are.

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Comments

  1. Video is here. (Embed code gives me an error).

    <

    p>She quotes a CBO report that outlines the effectiveness of several policy options for job creation (see page 11). Top of the list both in terms of quick impact and the number of jobs created? “Increasing Aid to the Unemployed”. Bottom of the list? “Reducing Income Taxes in 2011”.

  2. while working at your tire shop (union shop of course)… you sell 100 tires and pay 15% in taxes and make 4% profit, great. But as you say demand says you can sell 200 tires the next year. So you hire someone to help and increase your sales, but you also have a 30% tax (not 15%), and your profit went from 4% to you losing 4%. You were better off selling 100 tires with a lower gross sales volume and a lower tax rate. In almost every case, the small businesses bottom line profit (and/or survival) is driving their decisions, not total sales, not hiring/firing/staffing, not tax rates… just profit.

    <

    p>You could together a million scenarios depicting making more money or losing money but don’t try to reduce this issue down to the simple illustration you started with. This argument gets so mixed up since conservatives are puling small businesses into the fray which truly do get the pinch of higher taxes effecting their bottom line and liberals pull in multi-billionaires saying they don’t need the extra money and don’t spend it anyway.

    <

    p>Can’t we separate these issues? Can’t we write the tax code so the increase does not effect small businesses using IRS tax Form “ABCD1234”? Can’t we raise the income threshold to $1M? Doing this would seem to neuter the arguments of “Small businesses are the engine of growth and taxing them would stall the recovery…” and “$250K does not make a person with a bunch of kids licving in NYC rich…”.

    • You are taxed on profit, not gross sales.  

      <

      p>You said

      you sell 100 tires and pay 15% in taxes and make 4% profit, great. But as you say demand says you can sell 200 tires the next year. So you hire someone to help and increase your sales, but you also have a 30% tax (not 15%), and your profit went from 4% to you losing 4%

      .

      <

      p>I believe you are implying that the higher tax put the business in red, I do not follow that logic seeing that taxes are based upon profit, not gross sales.

      <

      p>In 2009 my gross sales are $1,000,000 minus 50K in labor leaves me with 950K profit.  I am taxed at 15% that leaves me with $807,500 after taxes.

      <

      p>In 2010 my gross sales double to $2,000,000 minus the doubling in labor expenses to 100K.  
      My profit is now $1,900,000.  
      I now taxed at 30% of the 1.9 million and that leaves me with $1,300,000 after taxes.

      <

      p>

      This is still an increase in profit margin year to year by 392K or  almost 40% profit increase over last year

      .

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