Sunday, August 12, 2012

Economics Not For Dummies part 5

I was not eager to do another economics blog so soon. But I see a need and readers seem to like them. Having said that, I will venture onward and try to explain why the presidents policy to "increase taxes on the rich" is beyond harmful and into disastrous. The  president defines rich as an individual making over $200,000.00 a year or a couple making over 250,000.00 a year. That may be living well but it certainly is not rich. From here on we will accept that the conversation is about couples. If two people both work at good jobs an income of 250 K is a reasonable expectation. A small increase in taxes to people in this position, while unwelcome, would probably not be destructive. That is unless they have children to educate and a mortgage to pay and live in a city where the cost of living is out of sight.

There are many families that own small businesses. A great many of these businesses are called S Corporations because they fall under Sub Chapter S of Chapter 1 of the IRS Code. Profits of a S Corp. accrue directly to the shareholders as personal income. In other words, if you own an S Corp. the gross profits are income to you. You are not allowed to set aside a portion of that income before you pay taxes on it so that you can expand your business. You must pay taxes first. You may then take money out of your personal income to buy new equipment or hire new personnel.

Since the owner is the risk taker that started and grew the business he deserves as much income as he can take from the business in keeping with future plans. If the future is unknown both with taxes and business conditions one cannot make even a one year plan, never mind a five year plan. It is near impossible to run a business on the back of an economic roller coaster. With purchasing down, fuel costs all over the place, the cost of raw materials fluctuating, and the cost of Obamacare being a huge unknown, small businessmen are sitting on what profits they can squeeze out of their businesses and waiting.

Since they are the engine for growth in this country, when they sit on the sidelines, the economy stagnates. Tax income to the government falls. Since politicians cannot control their lust to spend other peoples money, they either raise taxes or borrow or both. Which, of course, puts the economy in a death  spiral. As some of our smarter pols have said, "We don't have a tax problem. We have a spending problem.". We need a government that will examine every dollar spent for honest justification.

I have said it before, but it is worth repeating. If the government would do four things the economy would take off like a sky rocket. First- freeze tax levels where they are now for five years. Second- turn back Obamacare. Third- cut back on the ridiculous amount of unnecessary regulation business must deal with. Forth- Go after every bit of fossil fuel that we have and free ourselves from the middle east. If you know a small business man or woman, show them my four points and get their opinion. There is a ton of money all over the world waiting for investment opportunities and they know that a sound strong America is the best and safest place to invest. Preserve America.

On a separate issue, I had this piece finished when Romney announced his choice of Paul Ryan as his running mate. Romney was blessed with a number of excellent choices. Ryan is right at the top of this list. He is a serious man with an encyclopedic knowledge of this country's financial situation. He is an asset to both the ticket and the country. Old Cranky approves.

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