The Taxman Cometh

I have a question. How do you raise federal social spending and economic control to new heights and then complain about the budget deficit, much less think you will cut that fiscal monster in half?

Taxes Hikes on “The Rich”

The President has not come out officially on this, but his administration is as leaky as all the others so we found out that he plans, in addition to scaling back Iraq war spending, to end the Bush tax cuts for those making $250,000 or more a year, and to streamline government.

With his recent troop surge in Afghanistan and the deteriorating situation over there along the Pakistan border, Iraq war spending will mostly be shifted to Afghanistan war spending. No big savings there. As for streamlining government, it is laudable idea, one that every president of recent memory has pledged to do, yet none have actually managed to accomplish. So, we can probably dismiss that as mere rhetoric as well. From what we have seen so far, any cuts Obama might make will be balanced out by increases and new programs elsewhere, making this, at best, a wash.

That leaves only tax hikes on the very people who make America’s economic engine run. "We can't generate sustained growth without getting our deficits under control," Obama said in his weekly radio and Internet address, justifying what is about to come, and adding that his budget will be "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

Let’s understand what he has done: Obama’s plans call for moving more people off the tax roles than at any time in history. More than that, he has reintroduced the American welfare state by rolling back the Clinton welfare reforms. That means more and more people are going to be recipients of taxpayer money rather than contributors. This narrowing of the tax base increases pressure on those who create jobs by either opening businesses or investing in businesses, people who already pay far more than the lion’s share in taxes. Now they are to pay more.

Soaking “The Rich” Gets Everyone Wet

Imagine that you are the sole proprietor of a small business and your business makes several hundred thousand a year. That does not make you fabulously well-to-do, it makes you a hard working small businessman scraping by. Now, take it a step farther and imagine that you have managed to employ two assistants to help you in the shop. Their salaries are not lavish but they are competitive and you even provide basic healthcare. It is a nice little set-up, at least it is until your taxes go up and begin cutting into your profits. Now you need to hire a tax expert. Will you raise prices? If you don’t, will you be able to keep your employees? What about their health benefits? How about the funding you need? Investors will tighten their activities because the cost of doing business is now higher. Will you be able to keep your business?

These are really not the kind of questions that the Administration is keen on answering, they are details and they want to keep everyone’s attention on the big picture: their wildly disparate promises to stimulate the economy, bailout the banks and the automakers, save the mortgage sector, get us out of Iraq, put us into Afghanistan, give 95% of Americans a tax break and cut the deficit by 50%.

The Bottom Line

For many small businesses, the income from the business goes straight to the owner’s taxes. These tax hikes will do great harm to the small business, especially coming on the heels of the credit crisis. For those who cannot afford the kind of accounting talent to keep the taxman at bay, or have the flexibility to move themselves and their operations to a better tax environment, the only alternative is to pay; and in paying the only benefits are to the government, but even that won’t last.

Money that would be spent to create jobs will go to the government instead, worsening the unemployment situation. That means more federal and state money going for welfare and unemployment programs to support people who could have been employed if only business owners and investors had the money to expand these businesses and create those jobs. Those who would have been taxpayers become recipients instead. Wealth is consumed, not created.

But then, that does seem to be the plan, doesn’t it?