Posted on 05/29/2009 2:25:18 AM PDT by Halfmanhalfamazing
RUSH: Listen to this. This ran today in the Washington Post. Now, this prints out to six pages. In the newspaper it would probably be a pretty long story, and the interesting stuff is not 'til later in the story so I don't know how many people are actually going to read enough of this to get you the dirt on it. It's by Lori Montgomery and V. Dion Haynes: "Gail Johnson doesn't think of herself as wealthy. The former pediatric nurse has spent 20 years building a chain of preschools and after-school programs that accommodate sick children so working parents can keep their jobs. But, like most small-business owners, Johnson reports her profit on her personal tax return." Now, at this point I need to jump in and explain something here so that what you'll hear in a moment when I continue reading makes sense. When I said that a lot of small businesses are organized as subchapter S's and file their taxes on a personal return, this is what I mean. They don't have a C Corp. or a tax return specifically on the business. They just put it on their personal, if they're subchapter S. Now, if you're a subchapter S, let's say that you incorporate, you sell widgets, and you pay yourself a salary. After all the gross revenue comes in and you pay your employees, you pay your expenses, then you pay yourself.
Every dime of profit does not go to the small business owner. Sometimes the small business owner will take it, depending on how large it is, but most small businesses churn the profit. They save it, invest it, or reinvest it in the business. And this is key to understand why these people are gonna get creamed with the upcoming Obama tax increase. Okay. "Like most small-business owners, Johnson reports her profit on her personal tax return. In a typical year, she and her husband make more than $500,000, according to her accountant, a figure that throws them squarely into the ranks of the richest Americans -- and makes them a prime target for the Obama administration's tax policy. Since last year's campaign, President Obama has vowed repeatedly not to increase taxes for families making less than $250,000 a year. That pledge, while politically popular, has left him with just two primary sources of funding for his ambitious social agenda: about 3 million high-earning families and the nation's businesses. Johnson, with her company, falls into both categories."
I'm skipping three pages to get to the meat of this. "Johnson declined to say whether she voted for Obama. But she said she ignored his tax plans until her husband, who handles real estate and construction for the schools, mentioned it one day. 'I've since talked to my accountant,' she said. 'And, oh, my gosh!' The accountant, Carroll Hurst, said Johnson is unlikely to owe any federal taxes this year due to accounting changes that confer a one-time tax benefit. But in a typical year, he said, Johnson and her husband earn about $515,000 from various entities related to the schools. They claim around $90,000 in deductions -- much of it contributions to charity -- reducing their taxable income to around $425,000. Johnson said the sum they take home in wages is 'substantially less.'" And, see, this is the key. What they're paying themselves -- I wish more people understood this. All of you small business people, sub S's, I know you know this, but right here it's being said -- their income. No, the business income is $425,000. They pay themselves a salary after all of that. I don't know what it is. They may be paying themselves a hundred grand a year, $150, but they get taxed on the $425,000 because they're putting it on their personal return. If they filed a separate business tax, it would still be the same thing because Obama's going after both entities, as the story points out. Now, one of the reasons that people incorporate into a sub-S, even sole proprietorships, even one-person businesses is precisely because -- and John Edwards did this, remember, he took a lot of heat for it, but it was legal. The Medicare tax, like Social Security, FICA as a ceiling on what they deduct, your portion, seven-and-a-half percent, but if you're self-employed you pay both sides. So you're paying basically 12 to 13 percent Social Security up to a hundred and six thousand a year now, but Medicare is now 2.9 and now 3.9% of every dollar you earn so people go sub-S, pay themselves a salary to limit what they pay -- this is what Edwards was doing with his law firm, and then you take at the end of the year a bonus that you call capital gains or some other thing. It's not taxed as real income, so you don't pay any Medicare. This is common, people do this. This is why the Obama administration is going to make some tax adjustments to eliminate people getting out of the Medicaid tax. It's just prohibitive. It's adding another 4% onto your federal rate. So if he raises it to 39.6, plus the Medicare is going to be 44% for people who are just sole proprietors, independent contractors, that don't organize as a sub-S.
Now I've gotten distracted. The point is the sum they take home in wages is substantially less than the business income, net income of $425,000. That's the amount they pay themselves. "In a typical year, Johnson's federal tax bill would be about $120,000. But starting in 2011, the higher marginal rates would add about $13,000 a year, Hurst said. Capping the value of itemized deductions at 28 percent would add another $10,000." So this woman and her husband, small businesses, are looking at a tax increase every year of $23,000, and she didn't know this when she voted for the guy. Well, it doesn't say she voted for the guy, but why else deny it? Or why else not mention it?
"Other business owners are also nervous. Jim Murphy, president of EST Analytical in Fairfield, Ohio, which sells analytical instruments to environmental testing labs and pharmaceuticals, said his company is struggling in the sluggish economy. But if profit returns to pre-recession levels -- about $455,000 -- Murphy said his accountant estimates that" his tax bill will double to $120,000 because of Obama's proposals. "'The misconception is that guys like me take [our profits] and put it into our pockets,' said Murphy, who employs 47 people. 'But the money the company earns in a given year is used to buy additional inventory so we can grow and hire.' A 50 percent tax increase, he said, would be 'really painful.'"
These small business people like Fred in Cleveland, you've had a bull's-eye on your back ever since this guy got elected. The idea that you might get your mortgage refinanced? No, you're not the target for that. You are the target to have even more money taken away from you. Now, imagine this. He's got a business with 47 employees, and his profit, this Murphy guy, his profit was $455,000. That's not what he pays himself. He just said it. "The misconception is that guys like me take [our profits] and put it into our pockets." He pays himself something, I don't know what, doesn't say, out of the $455,000. But he pays personal taxes on the $455,000. There is a deduction he gets from it however. So small business, Washington Post has it, in the first hundred days, we're talking about all the great achievements, all the wonderful things Obama's done, he's the best president we ever had, oh, my gosh, people can't contain themselves, small business is braced for tax increases, auto business in the tank, the bank business in the tank, everything is going to hell in a handbasket.
You don’t start a fire by drenching the flame.
Unfortunately, the entire process is beyond the understanding of the typical Obama-voter, and therefore meaningless. Gross profit, expenses, net profit, inflation indexes, capital gains, you may as well be speaking Vulcan to those people.
I saw an interesting comment recently: we now have the least competant POTUS elected by the least educated majority in history.
“I saw an interesting comment recently: we now have the least competant POTUS elected by the least educated majority in history.”
For which an increasing amount is asked and paid.
(Unfortunately, the entire process is beyond the understanding of the typical Obama-voter, and therefore meaningless. Gross profit, expenses, net profit, inflation indexes, capital gains, you may as well be speaking Vulcan to those people.)
Above also well worth repeating and noting, with the exception/change of ‘typical Obama-voter’.
Don’t forget that businesses were also hit with the minimum wage hike last summer.
That can all change given how much of a dangerous place that the liberal media is in.
Everything is the property of The State: we allow you to keep enough to eat and continue working for The State.
It isnt only Obama voters who arent smart enough to figure out taxes, but the bottom line is more to the Government and less to me. I can understand that.
Wait until these people get hit unknowinly with these increases, along with the bill for Cap and Trade and other things coming down the line.
From this statement we can infer; 1. She voted for Obama. 2. She swallowed the MSM "hope and change" and/or "hate Bush" routine whole. 3. She just woke up.
The thing that bothers me more is continual abandonment of the Idea Of America by the people. The reducing of common sense standards. The trashing of American values. Of course all these things lead into the economics over all, but if the country is to ever get back on track we have to restrain those who would destroy our good heritage first.
If the Federal government raises taxes on individual earners -- and by extension the owners of S-Corporations -- then the S-Corporation will lose a lot of its advantages.
Ironically, I predict that under this scenario the regions that will be most devastated financially are those where S-Corps are used to avoid paying corporate taxes on the state level. Businesses in New York, for example, would no longer have any reason to organize as S-Corporations . . . which means they may very well have a strong incentive to stop doing business in New York.
Truer words never spoken. Add to that their "government as Santa Claus" mentality and exploding birth rate, and it's game-over.
Here, let me try. "Out of the 50 hub caps you have for sale, 25 of them must be given to the other guy that hangs around your corner with a cup, a piece of cardboard, and dark shades."
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