Raising Tax Rates on Small Businesses is Not a Smart Strategy

Business First published my "Guest Comment" today on the subject of raising taxes on small businesses (click here). The text of the article follows:

On the surface, raising income taxes on individuals making more than $250,000 seems reasonable to many people (especially those making less than $250,000 per year).

When politicians talk about these higher earners, they paint the picture of the public company executives making millions of dollars per year.

However, I want to discuss another class of people for whom raising taxes will have a negative effect on our economy. This is the small-business owner.

Many small businesses are organized as pass-through entities such as S corporations or limited liability companies. The profits from these businesses pass through to the owner’s individual income tax returns.

As such, many of these small businesses will be caught up paying higher tax rates under tax schemes currently being proposed. This will have two possible negative effects.

Capital for expansion will decline

First, capital for business expansion will be decreased.

About 40 percent of the income generated by S corporations and limited liability companies goes toward paying income taxes. In the majority of cases, most of the other 60 percent goes toward reinvestment in the business.

This usually takes the form of hiring new employees, buying new equipment and expanding into new business areas.

If tax rates go up, businesses are going to have less money to reinvest in their business growth. In this poor economy, we should be doing all we can to encourage small businesses to hire people and expand their operations.

Owners will be encouraged to ‘coast’

Second, small-business owners might “coast” and not work as hard.

I have talked with a number of small-business owners about the possibility of tax increases. Many of them have an interesting perspective on this.

Small-business owners as a group generally have a natural instinct to grow and expand their companies. Of course, one key benefit of doing this is to make more money.

However, there are downsides to growing a business. These include risk, stress and time. Actively expanding a small business involves significant risk that the expansion will fail.

This, and the worries that accompany business growth, usually cause significant stress on the business owner. And, of course, any efforts beyond the norm are going to take more of the owner’s time.

Owners could scale back

A disturbing number of small-business owners are telling me that they are going to “kick back” if tax rates go up. They are going to maintain their businesses at a level adequate to support their families — but no more.

If tax rates are going to increase disproportionately as taxable income increases over a certain level, why take the risk and incur the stress of growing their business beyond current levels?

In fact, I think some of them actually are looking forward to having a legitimate reason to “coast” for a while. This is not the attitude that our tax policy should encourage.

Thus, increased tax rates on small businesses are likely to create incentives for their owners to not expand their operations and may even cause them to scale back.

And that’s not a smart strategy in these challenging economic times.

Are You Over 40 (Or Will You Be Someday)? Introducing the "Complete Lives System"

Have you heard of Ezekiel Emanuel? You should, because he is an adviser to President Obama on health care matters (click here). He is also the brother of the Presidential Chief of Staff, Raul Emanuel. He co-authored an article, Principles for Allocation of Scarce Medical Interventions (click on the title to see the entire article), in which he promotes the idea of "The Complete Lives System".

The Complete Lives System for allocating medical care considers a number of factors, including age. As the table above shows, people between age 15 and 40 are favored with respect to the distribution of medical care. As the article states, "the complete lives system produces a priority curve on which individuals aged between roughly 15 and 40 years get the most substantial chance...". The article says that the system "prioritises younger people who have not yet lived a complete life...". It goes on to say that the "allocation treats life-years given to elderly or disabled people as objectively less valuable."

These are the people that are now directing our country's health care strategy.

Whole Foods CEO in the Doghouse for Correct Views on Health Care Reform

One of the more talked about matters on the Internet today is an article written by John Mackey, the CEO of Whole Foods Market, about the current health care debate. Apparently, many of the Company's customers are up in arms about what he wrote, some even calling for a boycott. I immediately went to find the article (here) and found that it was well-written, well-reasoned and almost 100% in accordance with my views on health care reform. For example, I have long believed that expansion of health care savings accounts, along with more transparency of health care charges, was the beginning of the solution to spiraling health care costs. Having people spend their own money is going to make people better consumers of health care services. When the insurance company covers the majority of the costs, there is no incentive for the individual to review and understand the charges. At any rate, Mr. Mackey is in the doghouse with many of his customers for expressing his views (see the Whole Foods Forum page here ); however, I admire him for taking a stand.

Hurricane Bill

I finally got a hurricane named after me (here). I hope it doesn't hurt anyone. Track it here.

Health Care "Call In" Town Hall Meeting

I read today (here) where Congressman Yarmuth held a health care "town hall meeting" over the phone. They allowed people to call in and ask questions, but only after they were pre-screened. All of his fellow legislators are holding live town meetings and apparently taking a lot of heat over opposition to the health care plan. It didn't take Mr. Yarmuth long to figure out how to hold a town hall meeting in a way to avoid any controversy.

The Future of "Health Care" in America?

This is a story that has apparently been around for a while, but I just heard about. Barbara Wagner was covered by the Oregon Health Plan, the health insurance plan offered by the state. Her doctor prescribed a drug in an attempt to treat her lung cancer. However, the state health plan refused to pay for it. They did; however, offer to buy her some poison for a physician assisted death. Nice.

Hopefully, this is not a picture of the future of health care in America.

p.s. Here is the video with the "take a pill" comment by President Obama.

Benefits of Global Warming "Research"

The Wall Street Journal recently reported (here) that 10 members of Congress went on a global warming fact finding "mission" to Australia. Global warming "research" apparently included diving and snorkeling at the Great Barrier Reef, cable car tours through the rain forest and a side trip to the South Pole. Of course, many of their spouses came along for the "research". I can see now the benefits of being interested in all this global warming stuff! By the way, we haven't been hearing much about global warming recently since the average July 2009 temperatures in most of the country have been 2 to 8 degrees lower than the 30 year average.

Good News for U.S. Energy Production?

I didn't even know there was such a thing as oil being in rock, but that's what this article says. I found this company that says it is already drilling test wells in North Dakota. Here is an older article that explains the process. Interesting.

More Planes for Congress?

It seems that the folks in congress that write the budget have penciled in some extra airplanes to the Air Force budget that the military didn't ask for (click here). The Air Force apparently asked for one C-37 and three C-40s. Congress added two more C-37s and two more C-40s. It is interesting to note that these planes just happen to be the type that the Air Force uses to fly members of Congress around. It also interesting to note that the C-37 is really a Gulfstream G550 business jet and the C-40 is a Boeing 737-700 business jet. Spend away!

I Have Been Down The Hole

Here is a good article from The Lane Report about the Louisville Water Company's Riverbank Filtration Project. It outlines in very understandable terms, the advantages of this type of system. Earlier this year, I was fortunate to be able to tour the project. We were lowered down a 150 foot shaft (that's about 15 stories for those of you bad with math) in a "cage" at the end of a crane. Definitely not for the faint of heart. Once I got down there, we were able to go part of the way back the 1.5 mile tunnel that ran out towards the river. Pretty cool!