Monday, July 16, 2012

Obama Proves, Once Again, That He Doesn't Understand Business

In announcing his plan to let the Bush tax cuts for the rich expire at the end of the year, the President mentioned that he will keep in place those tax cuts that will benefit 97% of all small businesses.  But what he didn't mention is that the remaining 3% that will lose the Bush tax cuts, amounts to about 1.2 million small businesses.  Also, that 3% generates 91% of all small business income. Obama acts as if of these businesses won't  miss that money or be adversely affected by the tax increase. This is total ignorance of how small businesses operate and use those profits.

Small business owners just don't  take their profits and  head off to the nearest casino to have some fun.  Most plow their after-tax profits back into the operation or they put it away for that inevitable rainy day.  When they do hire an employee, they use those profits to not only pay that employee's salary but, also, to outfit or equip each new worker.   The best example of how Obama's plan would severely hurt a small business is that of the family farm. Farming is boom and bust activity.  One year, they may make more than $200,000. But, the following year, they may lose the entire crop to floods or drought.  So, farmers always pack away as much money as they can to cover those unproductive years.  Furthermore, farmers don't see profits until the crop is actually brought in.  Until that time, they have to live off multiple years of profits in savings accounts. And, the expenses are high.  In a study done by the University of Iowa, the average farmer had both fixed and operational costs in excess of $438,000 in 2008.  So, obviously, a farmer has to have a minimum $438,000 in the bank; just to cover the potential of losing the following year's crop.  And, that doesn't include the salary they need to live on. But, Obama's plan would take a minimum of $6,000 a year away from that farmer for every year he makes more than $200,000.  So, when you're talking about an annual operational cost of $438,000 dollars, you might be talking about the difference between a farmer staying in business or going into bankruptcy.

Only a fool would think that raising taxes has no consequences.  Generally speaking, raising taxes has one of two results: (1) higher prices for the things that we all buy or, (2) businesses going belly up because they can not longer compete. And, the latter always ends in higher unemployment.


Small Business Statistics:

University Of Iowa Farm Study:

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