What is a Small Business?

There is a lot of talk about how small businesses will be hurt if the Bush tax cuts for the wealthy are not made permanent. But what is a small business and how many will see a tax increase, but only on the income above $250K. It is incremental.

A small business is any business that has a limited number of owners and file taxes as a sole proprietor, partnership, LLC or S Corporation. It is not determined by the number of employees or the amount of revenue a company makes. So you can have companies that make millions and billions of dollars but have less than 100 owners and file as an one of the above entities, thereby the profits are passed onto the owners and not taxed at the corporate rate. The owners then pay personal income tax on their share of the profit, since it it now personal income.

Example, Chrylser Motors is now an LLC with only a few owners, but generates billions in revenue. They are classified as a small business. The billionairs Koch brothers have formed over a hundred "Small Business" using one of the above classifications and they earn billions each year. They own oil wells, refineries, shipping, chemical companies, and much more. All with thousands of employees. Not what I would call small businesses. But the IRS does and so does the Republican Party.

So when Rep. Boenher says that small businesses will be hurt, he is talking about these large closely held companies with limited owners that make millions of dollars, like movie stars, oil barons, hedge fund managers, TV stars and entertainers, rail road owners, shipping tycoons, who all make hundreds of millions of dollars a year and give large sum of money to the Republican party and candidates for re-election. These "Small Businesses" earn 50% of all revenue categorized as Small Business but are only 3% of all Small Business registered in all 50 states.

The other 97% of Small Businesses pass through to their owners less than $250,000 per owner, thus these owners would not see a tax increase, and in fact would see a tax decrease under the Democratic tax bill now proposed.

Even the 3% of the large income "Small Business" would only see the tax increase on the income over $250,000, as the first $250,000 is taxed the same as the lower tax bracket of those who make less than $250K. So the impact is marginal to the excess income.

Furthermore, profits do not drive hiring more employees in a company, regardless of how it is classified. Increase in demand for its products or services drives hiring more employees. By giving these high income people more of their money would not stimulate new jobs, just more money to invest in off shore growth markets, like China. Why would they invest here, the money they make in China is tax free here in America. Duh...

The bottom line is that America needs that added tax revenue to apply to the large debt Bush left us with a destroyed economy. I know that the conservatives think they can do it by just reducing spending, but that would require abolishing every government department, even the military.

Social Security is self funded and not at all associated with the national debt.

Medicare is funded from general funds for expenses in excess of the premium payments received from seniors on Medicare and the premiums paid in by working individuals. The biggest demand for general funds is the Medicare Part D prescription drug benefit created by the Bush Administration - without a way to pay for them except by borrowing money through federal bond sales. No increase in premium rates to off set the cost, no increase in taxes of any type, just borrowed money.

Other areas that would see loss of funding would be the transportation department. Small and less populated states receive more money back from the federal government than they pay in for roads. That would be an increase in taxes at the state level to keep our roads in good repair. Most states are already in the red and do not have the ability to absorb this extra cost. The result will be deteriorating roadways and transportation systems. Bridges will collapse, air traffic will become unsafe, and mass transit will fall apart.

The same will be true for public health funding by the federal government. Sewer lines, water treatment and pipe systems will not have adequate funding from the states and local communities, thus they will fall in disrepair causing health risks from contaminated water and untreated sewer oozing up to the streets and homes.

The largest budget item is the military. So to reduce spending we will have to close more bases, discharge more soldiers, stop researching new weapon systems, and replacing worn out equipment and vehicles. At the same time we are fighting a war and trying to keep terrorism away from our shores.

One of the fastest growing budgets is the Home Land Security Agency. They will have to reduce the number of  intelligent agencies and contractors. Which could increase our risk of attack.

So if you make less than $250K, you may want to consider these probable issues this November and maybe your unwavering support of conservative Republicans or Tea Party'rs might be miss-placed. Think very carefully and do your own research and not accept what the political commentators tell you, from either side. Think for yourself and you may see things differently this go around.