Tuesday, July 27, 2010

Obama to raise taxes on small businesses
Another campaign pledge goes bust

  • The Obama Administration and Congressional Democrats have said that they want to raise taxes in the top two income tax rates in January 2011.  Under their plan, the 33 percent rate will rise to 36 percent, and the 35 percent rate will rise to 39.6 percent automatically in January.  These rates affect families and small business owners earning at least $200,000 per year
  • Unlike corporations, small businesses usually don’t pay their own taxes.  Rather, business profits flow through to the business owner.  The business owner pays taxes on her small business by adding the profits to her income tax form.  Therefore, personal income taxes are the same thing as small business taxes.
  • According to the IRS, most small business profits pay taxes in households making more than $200,000 per year.  The IRS keeps track of two types of small business income: sole proprietors, and “pass-through” entities like partnerships and S-corporations.
  • All small businesses.  There were 30 million tax returns reporting small business income in 2008.  On net (profits reduced by losses), these owners reported business profits of $981 billion.  A large chunk of this net profit--$488 billion—faced taxation in households making more than $200,000 per year.  A majority of small business profits will face a tax rate hike under the Obama-Pelosi-Reid plan.
  • Sole proprietors.  There were 22 million tax returns reporting sole proprietor income in 2008.  On net (profits reduced by losses), these owners reported business profits of $264 billion.  A large chunk of this net profit--$90 billion—faced taxation in households making more than $200,000 per year.  34 percent of sole proprietor profits will face a tax rate hike under the Obama-Pelosi-Reid tax hike plan.
  • S-corporations and partnerships.  There were 8 million partners and S-corporation shareholders in 2008.  On net (profits reduced by losses), these owners reported business profits of $717 billion.  A majority of this profit--$398 billion—faced taxation in households making more than $200,000 per year.  55 percent of S-corporation and partnership profits will face a tax rate hike under the Obama-Pelosi-Reid tax hike plan.

Tuesday, July 20, 2010

Splitting Apple in two
Yet another example of how the media turns the ordinary into a scandal

SAN FRANCISCO, CA—Apple CEO Steve Jobs fired back last week about the reported problem with the iPhone 4 stating, “This is life in the smartphone world; phones aren't perfect. We haven't figured out a way around the laws of physics yet."
This so-called “news story” reminds KP contributors of comedian Louis CK’s observation about modern technology and people. In a bit he relates the story of a fellow airline passenger complaining about losing his WiFi signal while in mid fight. Mr. CK’s take is, “How are you not amazed…like, oh my God, I’m flying through the air in a chair.” His reaction was to tell the passenger to take it in stride; after all, “The signal has to go to space” and back.

A couple of months ago it was Toyota that took a media lashing, which led to a congressional tongue lashing, but that story has gone aside for now, BP took its place. Now, the Gulf Oil spill is a legitimate news story and to an extent, so is the iPhone. But at a return rate of a meager 1.7 percent—under the industry average—why so much coverage? One thought: Mr. CK is right, we don’t find technology amazing, even when experiencing the most technological breakthroughs of all time.

-- Killswitch Politick

Tuesday, July 13, 2010

More burdens on small business means less small businesses
New requirements will have millions more tax forms pouring into the IRS

WASHINGTON, DC—A full forty million taxpayers, twenty-six million of which are sole proprietors will be met with a new challenge when filing their federal taxes come 2012. The new regulations mandate that taxpayers who receive income via a business provide a 1099 Form to any vendor who supplies more than $600 worth of goods and/or services.

In a press release written by the Taxpayer Advocate Service, the watchdog group predicts more trouble for small business’ to abide by the new tax rules…..

"The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance."

The measures are meant to close what the feds deem as a “tax gap” between what businesses and individuals owe and what they pay—traditionally resulting in a $300 billion per year underpayment. The light at the end of the tunnel is the regulations are exempt from debit and credit card purchases; businesses owners aware of this work-around may not be able to exploit it as each credit card purchase costs 2 to 3 percent per transaction. Instead, businesses will reduce the number of vendors they get inventory and supplies from—less business means less private sector growth—negatively hampering any economic recovery.

-- Killswitch Politick

Tuesday, July 6, 2010

Jobless rate drops slightly as more Americans stop looking for work
Despite spending $787 billion, the economy and unemployment lag

WASHINGTON, DC—The Bureau of Labor and Statistics released June’s unemployment numbers, recording a drop in the jobless rate from 9.7 to 9.5 percent. Good news right? Not so fast. While President Obama and Vice President Biden continue their “Summer of Recovery” fantasy tour, the jobless rate fell because more people have given up looking for work, without those to count into the U-3 index (652,000), the unemployment rate dropped.

Private businesses added 83,000 jobs in June, but the government dropped 225,000 census jobs, bringing the total to 7.9 million jobs lost since the Great Recession began in December of 2007. Though counterintuitive, the unemployment rate drop comes as the BLS reports a net 125,000 jobs were lost in June—again, thanks to those poor U-6 schlubs that have become so discouraged, they’ve stopped looking for work (the U-6 rate stands at 16.5 percent, unchanged from June of 2009).

The president though has a decidedly different take, call it suspension of disbelief, while touting his stimulus as saving the economy in Racine, Wisconsin telling a crowd suffering an unemployment rate of 14 percent, “…every economist who has looked at it has said that the recovery did its job…”

-- Killswitch Politick