October 15 marked the end of the extension period to file personal income tax returns and pay up for last year. So in our online poll last week we asked small business owners, “How do you feel about the income taxes you pay?”
Regardless of when you settled up with the government, if a small business owner pays more taxes beyond scheduled remittance it’s at once good news, bad news and compounded bad news.
It’s good news because paying more taxes usually means you were profitable. Congratulations. The bad news is the cash you remit to Uncle Sam reduces precious working capital. The compounded bad news is most small businesses are S Corps and LLCs, which pass profits through to their owners as taxable income. That number is added to salary and distributions, and all are taxed at the personal rate. But it gets worse. Small business profit is often phantom income: taxable income without cash to pay the tax.
According to the Tax Policy Center, income tax paid by individuals and businesses in 2007 amounted to 10.8% of GDP. After the financial crisis tax receipts dropped to 7.4% of the economy in 2010. By 2013 the tax to GDP ratio had risen to 9.5%, or $1.6 Trillion. These numbers tell us: 1) Americans pay a lot of taxes; 2) Economic growth = tax receipts grow.
With so much revenue potential when taxpayers and businesses thrive, one would think the government would try to create a favorable environment for those who hire and make payrolls. Unfortunately, much of our tax dollars feed a bureaucracy that’s particularly good at one thing: regulating business.
Research by Wayne Crews of the Competitive Enterprise Institute estimates annual regulatory compliance costs businesses $1.88 Trillion. At 11% of GDP, that’s $280 Billion more than tax receipts. Again, it gets worse: Crews says small businesses pay double per employee per year for regulatory compliance than big businesses. For small business, regulation compliance is a parasitic stealth tax.
Alas, small business owners know when they pay income tax, part of their return on investment includes funding an overgrown and growing regulatory state that can cost them more than taxes but is almost impossible to budget for.
Write this on a rock … High taxes and over-regulation are government’s foot on the neck of small business.
With the tax filling extension date coming this week, how do you feel about the taxes you pay?
69% - We pay too much in taxes, especially for what we get.
6% - We pay a lot of taxes, but it’s probably about right.
8% - Since we’re not profitable, we don’t play a lot of taxes.
17% - I would love to have enough profit to worry about taxes.
Americans are afforded a privilege which, while not rare on Earth, is certainly unavailable to billions of other Earthlings: We’re allowed to vote for those who represent us in government.
The words “privilege” and “allowed” are used with a purpose: the U.S. Constitution gives Americans the right to vote, but does not require us to do so. If voting were a legal requirement, in the 2000 election 100 million Americans could have been arrested, as pundits lamented the “Vanishing Voter” phenomenon.
But with all of its faults, no one can say America is hidebound. In the span of a decade, the Vanishing Voter has been supplanted by the Engaged Voter. We’re experiencing one of the most promising phenomena of the current age: increasing fervor and investment of the American electorate in the political process.
Say what you will about the Tea Party, it has not only given voice to those who hold dear conservative values, but to paraphrase Mr. Newton, it has engendered an equal and opposite reaction from those who inhabit the left side of the political spectrum. Ironically, this vociferous differentiation has placed greater import on the new electoral power brokers, independent voters.
Nothing bad happens when Americans get fired up about the political process, regardless of whether they spin to the left or the right, or mark time in the middle. Feeling pressure to take a political position typically manifests in becoming a more knowledgeable voter. If America is to ever solve its many challenges, those solutions will be demanded by an informed electorate who hire representatives to serve them, rather than anoint a self-serving political class.
Something good would happen if small business stakeholders were as politically organized and influential as other single-issue groups, like unions. If small business were a country, Wikipedia would describe Small Business USA like this: Population: 125 million (owners, employees and dependents). Economy: Largest on the planet. Contribution to society: Significant. Organized political influence for its own interests: Negligible.
What’s wrong with this picture?
With so much to contribute, Small Business America has many reasons to catch the tide of electoral fervor and become more involved in the political process. With so much at stake—challenges and opportunities—we have even more reasons to make our positions known to those who would represent us, rather than accepting policies we’re given by those who could rightly assume we don’t care.
Write this on a rock … Be a single-issue voter for your small business.
36% - We have and will continue to offer HC benefits.
11% - We currently have HC benefits, but plan to discontinue.
31% - We don’t have HC benefits and won’t provide them in the future.
0% - We currently don’t provide HC benefits, but plan to start.
22% - We don’t have employees.
Of our respondents who have employees, those who provide healthcare benefits are not far below those who don’t. I’m taking that as a good indicator. The response that is troubling is that 11% are currently providing coverage but plan to stop, plus no one reported they were planning to start offering healthcare benefits. Part of the reason might be associated with economic conditions, but based on what we’re learning, it’s my opinion that the imposition of Obamacare is also involved.