The Bay Area is full of entrepreneurs. There’s something in the air that creates an almost godly electric spirit that causes people to work hard and innovate. As 2011 nears, more and more I hear about how small business owners are clamping down in preparation for next year’s tax hikes. Clamping down is generally not a good term to use if you are a politician who wants to create job growth.
Let’s say you make roughly $3 million in annual gross revenue from your internet business like my friend Zach does. Not bad, but not exactly big money if you take into account his cost structure. If his pre-tax operating profit margin is 25% after he pays the salaries of all his employees, the rent, and so on, Zach is left with roughly $750,000 subject to taxes. If his tax rate goes up from 36% to 39.6%, for every dollar he makes over $375,000, he will pay roughly $25,000 more in taxes a year in 2011.
Well guess what? My friend is letting go of one of his junior programmers who makes roughly $85,000 to pay for next year’s $25,000-$35,000 tax increase! My friend feels bad letting his 2006 college graduate employee go, but he has no choice since revenue has declined since 2007, and the government is tightening the screws. Zach believes that 2011 revenue will be worse next year than this year, and is budgeting a decline. Thank goodness for 99 weeks of unemployment insurance! And no, it’s not reasonable for the junior programmer to just go work in fast food after only several weeks of looking.
DON’T LISTEN TO THEIR LIES. THEY AREN’T IN IT FOR YOU.
I’m trying hard to understand why the Obama administration wants to keep unemployment levels high? Small businesses make up 90%+ of all employers, and 75% of the net new jobs in our economy. Why doesn’t the Federal Government realize that punishing small business is bad for good people?
The reason why the government want to raise taxes on others is because they want more power. By raising taxes on the majority of people who employ others, the government takes away the power of freedom and creativity. Think about it for a bit. Let’s say taxes are at 100% i.e the government owns you. In this 100% taxation environment, you become a zombie with no spirit. As soon as the government announces they will lower taxes to 95%, the masses start stirring and productivity increases. But, as soon as taxation goes to 0%, the people will do as they please, develop their own power, and in the minds of politicians overthrow the government!
Power is intoxicating, and I don’t blame politicians for craving power. After all, their whole job is about creating attention, popularity and gaining power. It’s just important for people to realize that not everything is what it seems. Don’t listen to politicians who tell you that they want to promote economic growth and job creation. It’s just not true. If they did, they wouldn’t be raising taxes in a weak economic environment. What politicians want to do is to create the worst economic environment possible so that they can give themselves a low hurdle. If you are at the bottom, there’s only one way to go but up, and they hope to capture all the glory when things eventually start to turn.
So to all the faithful liberal-voting small business owners who are pro tax increases and big government spending, listen to your leaders and fire your workers. Feed their egos and feed their hunger for power. You are doing the right thing as a citizen of the United States of America! Go USA!
Readers, why do you think politicians want to disincentivize small business owners? Do you think there is this cure for power lust? If so, what would you suggest?
Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”