Reply #4: Small business OWNERS don't support tax simplification... [View All]

...once they look at their own tax returns.

I'll give you an example: the small business I used to work for. It was a printing company. (To simplify this discussion, we'll pretend that the 35-percent top corporate tax bracket is flat.) The top line on our tax return was about $3 million. At 35 percent, we would have owed the IRS a million dollars.

Now let's deduct the ordinary and necessary business expenses...

employee compensation and benefits
governmental compliance
deductible taxes
paper, film and plates
inks and coatings
proofing material
bindery wire
stripping supplies
chemicals
depreciation on the two new presses and the truck
utilities
fuel to ship orders

and you're now paying taxes on $3000 taxable income.

If taxes were flat, we would have sent them a return claiming we owed them a thousand dollars.

There is a HELL of a difference between owing the government a million dollars and owing them a thousand dollars.

Okay, let's be real generous and cut the corporate tax rate in half while we get rid of all the deductions. This printer would still have paid half a million dollars in taxes.

Now tell me where you're going to come up with the extra money. It can't come out of salaries; this guy paid terribly. You can't cut down the price of paper--customers choose the paper they want, and we used so much of it we were on the vendors' cheapest pricing tier. Ink, chemicals, plates? We bought those things in full-truckload quantities because you save ten percent by doing it that way, and we added on to the shop's air-conditioned space to hold the overflow. Prepress equipment? No one has SOLD a plate processor to a printer in the last 25 years; you get them free when you sign a contract to buy plates. Same deal with our proof-making equipment; DuPont brought it in and set it up. They even brought their own crowbar to get the crates open. We did every possible thing there was to economize--and in an excellent year we still managed to come out with $3000 in taxable income. And of that, one-third of it went to Uncle Sam.

You'll see this in small businesses all across America. There is no real profit in small business. Oh, the owners themselves can do well if the business is managed well, and the employees can do well, but the business itself? The ideal is to make no profit--because profit is what's taxed.

Oh, and I'm well aware that the government doesn't give you money for making donations. But check this out: My donation money goes to a group that used to be called the Animal Haven (this is the local no-kill shelter), the CARE Clinic (the local free clinic) and the Arts Council. Every year they will send me a letter: cut your taxes now, send us a donation before December 31. For people who give a lot to charity, tax reduction is a prime motivator.