Today is Election Day in America. Hopefully everyone reading this will be either on their way to or returning from their polling place. If the media is to be trusted - and why start now - America is going to see voters turn out in record numbers. Given that it is all but a forgone conclusion that Barack Obama will emerge victorious, I wanted to clarify an aspect of his tax reform platform that often goes ignored or misunderstood. Actually, I wanted to clarify something about our attitude toward taxes and who pays more - but I'll get to that in a bit.
First, a bit of melodrama:
IF Barack Obama passes his tax reform bill as outlined on his website, I will likely be unemployed.
Let me restate that.
Should the tax reform program - as outlined on Barack Obama's website - become a part of the US Tax Code, it is very likely that I will no longer be able to make a living as an independent contractor in the commercial video industry.
Honestly, I'm not an Obama detractor. He has a lot to recommend him. Obama and I see eye to eye about Iraqi oil financing the US presence in Iraq. We are both firm supporters of a sustained manned presence in space. Both fine voting issues.
But what disturbs me is the fact that his economic plan - far from being counter productive or evil or even socialist - is simply nonsensical.
I'm not a fan of McCain's economic policies either - so don't start with that old saw. McCain offers more of the same play-both-ends-against-the-middle tax policy which congress has tossed around for over one hundred years. But reading through the Obama case for reform leaves me scratching my head. Couldn't anyone in the Obama election office hire an eleventh grader to point out the spiral of death his tax structure will create?
But I'm getting ahead of myself.
OK, so how exactly does a tax cut for my own tax bracket lead to my unemployment? Easily. I'm being given money that, by rights, I should simply have been allowed to earn on my own.
OK, I'm being intentionally obtuse. Forgive me. Let me start over.
The Obama Tax plan seeks to increase or at least not mitigate the tax burden on households or business grossing over $250,000 annually. His platform insists that 95% of small business in the US make under this amount. I can pick at his numbers but in a sense, he's dead right. The problem is that most of those "small businesses" aren't operations anyone would normally consider businesses. They are more typically referred to as a sole proprietorship. And like myself, they actually could use the tax break.
Problem is, our clients are business grossing well over $250K. Worse still I'm in a sector largely considered discretionary. When my clients feel the pressure of an increased tax burden my line item is the very first to be cut - right before the coffee and hot coco at the office sink. What will happen - what has happened in times passed - is that video will become internalized. Cameras and computers are tax deductible expenditures and unlike myself, they depreciate.
What makes this situation all the more painful is the fact that many of my friends seem to think that the "big" business who employ me (I do not currently and seldom ever work for anyone earning less than $500K ) have it coming. I was told just last week that these new taxes "...will simply come out of their profit margin...right?"
OK, fair warning. My degree was in Economics. Don't use a term like "profit margin" in my presence unless you want the full one-hour lecture. And take notes because the quiz is a bitch.
Let's start again at the top.
Businesses don't pay taxes. Let me rephrase that. Business don't take taxes out of their earnings. Businesses have accountants who can calculate estimated taxes based on their offsets and revenue. They then roll those taxes into their variable costs of doing business. Given that the market, for all intents and purposes, determines the price they are allowed to charge for what ever the hell they sell, they then have to balance these new tax outlays against their revenue stream. The extra expense therefore, has to come out of operating expenditures.
Advertising is always the first to go and that's me.
After advertising, any outsourced activity that can't be cut is internalized. And there goes my other job. Anyone with a camera and a laptop can do what I do, right? Well as it turns out, no...but it typically takes two years before they give up trying.
OK, let's ignore my specific plight and look at the bigger picture: The Obama Tax proposal is aimed at households and businesses that earn more than $250K. Smaller businesses and households will be given a tax cut.
Fine.
Only problem is that businesses earning less than, say, $300K don't usually have employees per se. And those business and households earning less than $250K (or $200K or $150K depending on which proposal you read) basically work for those business who earn $300K and over. The next line item that goes after advertising, outsourced services, coffee and coco is manpower. Given that the price of goods is set by the market. Given that operating costs are generally fixed as well. Given that most businesses don't make profit beyond the salaries of their employees, what happens when they need to find a few extra dollars to shed?
How much is a tax cut worth to a man who has just lost his job?
Yes. It really is like that. Basically, I'm not saying that Obama's tax plan is bad. I'm not calling him a socialist. I am saying that his tax plan is silly. It's silly because it just patently, obviously, rationally does not work. It doesn't work on any level. Accountants know this. Businessmen know this. Eleventh graders know this. Why doesn't Obama seem to know this?
And yet there is a bigger picture still:
Placing taxes on those earning above the $250K mark does, at the very least, discourage wage increases. Employees not losing their jobs as a result of increased taxes will at least not receive their usual cost of living increases. That is a proven historical trend. I've personally lived through it twice.
As wages slip next to inflation or simple cost of living, consumers tend to spend less (obviously). Worse still, what money they do spend will be spent at larger discount retail chains - yes, Walmart. The smaller business simply can't offer the high volume-low prices that the large retailers do. The consumer then chooses Walmart over small business with their reduced income. In the end, despite a tax cut, the small business winds up suffering anyway.
What you create is a situation where, due to tax increases on larger entities, those earning below $250K are left with with so little taxable income that they don't benefit from the proposed tax break they were target for in the first place.
Honestly, I have to assume that Obama's election committee was just making campaign promises here. I have to assume that when he does present his actual tax plan it will look more like a functioning, job-generating tax package than the employment depth charge he currently touts.
Why?
Because he has smart people working for him. They won't let him worsen an economy already on the brink of recession.
So why is this happening?
Somehow in America, we've gotten the idea that those earning 'a lot of money' aren't contributing to the market. We see successful businesses and imagine huge bank accounts with Scrooge McDuck money bins and surfboards. What we forget is that any money we take home, one way or another comes from these successful enterprises. To the extent that these enterprises have enough revenue to spend with discretion, we can negotiate a portion of that money into our own accounts. We look at companies like Microsoft and wonder what exactly they do with all that money. Apart from employing 39,000 some odd people, they cut me a check every year in the form of dividends. I own Microsoft. Lots of people do. When you cut into those earnings, you cut into my bottom line.
I guess what I'm disturbed by is the fact that people are so quick to blame successful enterprise for their own problems.
I don't think Obama feels this way.
I do think that he believes we do.
When the stock market dropped last month, I pulled out the last of my meager spending money and sank it into some very large companies. Their stock had dropped precipitously and I knew that an opportunity like this comes around maybe twice in a lifetime. The experience only served to reinforce something that I had always felt. Tearing down those who achieve success helps no one. Taking part in something that has earned others prosperity helps everyone. And even if I felt that the government really was correcting an injustice by placing the tax burden on those with more money to lose, what was going to do me the most good in the long run?
A few hundred dollars from the IRS once a year?
Or a contract with a company that could afford to pay my invoice in-full every month?
So please, please, please vote your conscience. I would never tell anyone not to vote for the candidate that served what they felt were their best interests. What I do suggest is that as you vote, make sure that you are voting for something you feel will improve your life and not against something that improved someone else's life more than yours.
