Give Me a Tax Cut, or Give Me Death!

Small Business Tax & Toil

By: Larry Walker, Jr.

I have been contemplating all the blood, sweat, and tears shed by Small Business owners like me. Having been in business for the past 9 years, I have come to the realization that:

1. I am paying a hell of a lot in Taxes (and government mandated fees), and


2. I am feeling mighty under appreciated.
   

The Federal Government, under the American Recovery and Reinvestment Act of 2009, chose to give a Social Security tax cut, the Making Work Pay Credit, to workers making under $75,000 per year. That's all well and fine, but what about the Small Businesses who pay those wages? Small Business Owners have to pay double the amount of Social Security and Medicare taxes on our own pay, plus a matching amount on what we pay our employees.

As the owner of an S-Corporation, in order to write myself a paycheck I am hit with 25% in Federal Withholding Taxes, 15.3% for Social Security and Medicare (since as an owner-employee both halves come out of the same pocket), 5% for State Withholding Taxes and Federal and State Unemployment Taxes. Excluding Unemployment Taxes, I have to withhold and pay in 45.3% of my pay every month. On top of that, since I have employees, I also have to match 7.65% of their pay for Social Security and Medicare Taxes.

As a side note, I also have to pay business license fees, professional license fees, professional liability insurance, health insurance, matching retirement contributions, etc. ... and then actually operate the business. But lets just keep the focus here on taxes.

As an example, let’s say I have to write gross pay checks for myself and my employees of $8,000 per month. And let’s say $5,000 of that is for me, and the other $3,000 is for two employees. In order to pay myself $5,000 I have to set aside $2,265 for taxes ($5,000 * 45.3% = $2,265). In order to pay my employees $3,000 I have to set aside an extra $229.50 ($3,000 * 7.65% = $229.50) to match Social Security and Medicare.

So to summarize my gross pay started out at $5,000, but my net take home pay wound up being only just $3,117.50 (see the chart below). In the end, I have spent a total of $8,612.00. My employees took home $2,770.50, I took home $3,117.50, and the Government took home $2,724.00.

click to enlarge

When times are good and I can afford to take a full paycheck I have to fork over 45.3% of my earnings to the Government. When times are tough and I can’t afford to pay myself a full paycheck I still have to fork over 45.3% of my earnings to the Government. And when the business makes a profit, the Government will be standing there laying claim to another 30% or more of my toils (25% Federal Taxes and 5% State Taxes).

And now the Federal Government, through the Senate’s Health Care Bill, is proposing to:

• Add an Excise Tax on Comprehensive Health Insurance Plans



• Burden us with Employer Reporting of Health Insurance Costs on W-2 Forms



• Hike Taxes on Health Savings Account Withdrawals by 10%



• Raise the “Haircut” for Medical Itemized Deductions from 7.5% to 10% of AGI

(See How Does the Reid-Obama Health Bill Raise Taxes on Your Current Health Plan?).

If there is any common sense at all in Washington D.C., Congress and the President will realize that Small Businesses employ most of America, and that Small Business owners pay an unfair burden of Social Security and Medicare Taxes. And we receive nothing in return. When liberals start whining about tax cuts for the rich, perhaps they should try standing in the shoes of a small business owner. They would not last a week. They would die from their own complaining.

Do Small Business Owners deserve tax relief? You’re damned right! What can you do about it in Washington D.C.? Well, if you want Small Businesses to spend more, hire more, and stop the lay offs, then stop squeezing us.

1. Give small business Owners an immediate tax cut of 50% of the Social Security and Medicare Taxes on the wages that they pay themselves. This is not only fair, but it would be just that simple.



2. Or, if you really want to be fair, then give us a 50% tax cut on the Social Security and Medicare Taxes on all the wages that we have paid so far this year. It's time to act.
   

Give me a tax cut, or give me death!

---
Related: Common Sense vs. Obamanomics

Related: A Brief Legislative History of Social Security

Obama's Cluelessian Economics - Not Keynesian

By: Larry [Update: below in red]

As economists from across the globe are grappling to find a new name for Barack Obama's economic policies, I have beat them to the punch. Cluelessian is Obama's new model for future economic (failures). Thus, in an effort to ensure that others do not slip and fall down into the same bottomless pit, let me help you define the difference between Free Market Economics and Cluelessian Economics.

The two most basic concepts in free market economic theory are the laws of supply and demand. Under the law of supply as prices increase the quantity of goods and services increases, as additional investment is attracted into the market. Under the law of demand as prices decrease, the quantity of goods and services demanded increases, because more consumers are able to afford these goods and services. Where supply and demand meet is at the prevailing market price.

Now when a price is set below the prevailing market price in order control prices, less investment is attracted to produce the supply. Where the price is fixed as in the graph below, the quantity demanded is higher than the quantity supplied, thus creating excess demand, better known as shortages. And shortages lead to rationing.

On Health Care Reform

Under Cluelessian Theory, the laws of supply and demand didn't work for everyone. Thus, what is being proposed with health care reform is an increase in the number of people covered by insurance through a legal mandate (demand), without increasing the price. This is only possible under the Cluelessian Model. In fact, under the new theory demand will increase, prices will decline, supply will decline (as insurance companies go bankrupt) and higher income taxes will make up the difference.

Under Cluelessian theory you actually wind up paying more for less, but that's all right because higher taxes don't count towards the price of health insurance, right? Also by following the Cluelessians we can get rid of all those evil, greedy doctors and insurance companies at the same time. So under Cluelessian theory it would appear that we would actually destroy the free market system, and create not only government run health insurance, but also government doctors and hospitals.

On Climate Change

Now when it comes to making an impact on the effects of that evil, and relentless Sun, that sits in the middle of our solar system spewing out all that heat, the laws of supply and demand just don't quite cut it. So it will be necessary to dramatically reduce the supply of electricity, coal, natural gas, and gasoline; meaning that prices will necessarily 'skyrocket' (a Cluelessian axiom).

Cluelessian policies will necessarily call for a dramatic decline in the demand for energy. As the supply declines and businesses begin to lay off workers and shutter plants, and as people begin to freeze to death in their homes and to die of heat stroke, the Cluelessians will compensate by _______? (I don't think they have thought this one all the way through.)

A. Raising taxes to help those who can no longer afford their energy bills?

B. Coming up with a nifty formula to demonstrate how many human beings they saved, or how many years of life they added to Planet Earth?

On Jobs

Under Cluelessian law, a job saved (or created) is equal to giving a pay raise to existing employees. Contemporary economists thought that a job saved entailed cancelling a layoff, or recalling laid off workers; and that a job created meant hiring new employees on top of the existing workforce. However, under Cluelessian theory, whatever makes you look good counts. As we saw recently in the news, the Southwest Georgia Community Action Council was able to save 935 jobs by providing a cost of living increase for only 508 people. (See the last post: Jobs and O-bonics Interpreted).

The Cluelessians haven't yet been able to formulate a way to actually create jobs so please check back for updates over the next three (3) years.

[Update: The Cluelessians have just stated that a key part of their plan for job creation will involve housing Guantanamo terrorism detainees in U.S. prisons. Cluelessian economists are talking to Illinois officials about buying the Thomson Correctional Center, a maximum-security prison about 150 miles west of Chicago. A limted number of the remaining 215 Guantanamo detainees would be housed there which some Cluelessians are claiming could create up to 2,000 jobs. So now we have an even better understanding of how Cluelessian policies will impact future economic and social deterioration.]

Conclusion

So in conclusion it's not too hard to understand Cluelessian Economics. Simply throw away the idea of a free market system. Forget about the laws of supply and demand. Under this new theory the Government will take care of all of us. The Government will supply our health care, energy, and employment needs. The Government will take the place of the free market. The Government is good, and we are bad. The Government knows all. And when the Government runs out of money, then under Cluelessian law, they will make up another lie (i.e. blame Bush).

Now if you want some real answers, you should check out The Just Third Way Blog, or The Center for Economic and Social Justice. You may even want to read, Capital Homesteading for Every Citizen or Binary Economics: The New Paradigm.

Related to and inspired by John Galt at: John Galt's Wisdom Blog

Jobs and O-bonics Interpreted

Why Take Math? So Your Ignorance Isn’t Broadcast Nationwide on the AP Wire

November 6, 2009

This is pretty funny. Or horrifying. Depends on how you want to look at it.

Several days ago, I noted on Twitter that there were a lot of “saved” jobs that weren’t saved at all but actually cost of living increases. About 24 hours after I noted this, there was an Associated Press article about that very phenomena.

Coincidence? Almost certainly. But I’ll flatter myself anyway.

But the laugh riot comes several paragraphs into the article as they look into why Southwest Georgia Community Action Council was able to save 935 jobs with a cost of living increase for only 508 people. The director of the action council said:

“she followed the guidelines the Obama administration provided. She said she multiplied the 508 employees by 1.84 — the percentage pay raise they received — and came up with 935 jobs saved.

“I would say it’s confusing at best,” she said. “But we followed the instructions we were given.”

“Confusing at best”? The multiplication of percentages is “confusing at best”? It seems obvious to me she should have multiplied 508 people by the amount the increase (.0184) and gotten 9.3. But she forgot that you have to divide the percentage by 100 before you multiply.

The fact that she had “saved” more jobs than there were people in the organization should have been a tip-off. But this is a pretty common problem with people who don’t have a very good grasp on mathematics… they don’t recognize obvious mathematical errors, they just plug in the numbers and go with whatever comes out.

And this, children, is why you pay attention at school. So you don’t get in the national news for doing something really stupid and then blame it on the instruction manual.

Via: Political Math Blog

----------------------------------------------------------------------------------------------

My Comments:

So I take it that instead of creating or saving 1 million jobs, we only created or saved around 10,000 (after moving the decimal place two places to the left). And since we know that no jobs were actually created, what Obama really means, you have to interpret the Obonics, is that, “we lost 4.2 million jobs, and we think we would have lost 1 million more, but thankfully our $787 billion dollar stimulus program saved around 10,000″. Right?

3.5% Growth in the 3rd Quarter? No! Try 0.87%

Source: Trade and Taxes

Raymond L. Richman

The U.S. Bureau of Economic Analysis issued a misleading report when it announced October 29, 2009, that annualized Gross Domestic Product, measured in 2005 prices, increased 3.5 percent from the 2nd quarter 2009 to the 3rd Quarter of 2009. The fact is that annualized GDP in the 3rd quarter was $13,014 billion compared with $12,901 in the 2nd quarter , an increase of 0.872, less than one percent. The number, 3½ , asserted by the BEA was obtained by multiplying 0.872 by 4, in other words by extrapolating the rate of increase in the 3rd quarter for three additional future quarters, hardly a scientific way of prediction . What is worse, analysis of the data indicates no reason to expect any future growth of the economy at all.

Net private non-residential investment, the key to a growing economy, declined in the 3rd quarter. So did net exports. Exports increased but imports increased even more, resulting in a drag on the economy. Personal Consumption increased but that was due principally to a non-recurring factor, the “klunkers” rebate, a costly exercise in subsidized consumption which did more economic harm than good. We already have evidence that it was at the expense of sales in the succeeding period. Thus, it will contribute to a decline in the current quarter. And it will no doubt have a negative effect on auto repairs and maintenance expenditures. Although the administration claimed that it was intended as a stimulus to the economy, it was done at the urging of environmentalists wanting to reduce carbon emissions in the atmosphere. Personal Consumption may increase in the future but there was nothing in the 3rd quarter data to give any assurance that it will.

Personal consumption may grow if expectations about the future of the economy improve. Unfortunately, the data do not lend to the expectation of the economy’s growth. The real growth of the economy is dependent on fixed private investment. Private non-residential fixed investment fell, -1.88 percent in current dollars and -.636 percent in 2005 dollars. Multiply those by four!

The other principal contributor to economic growth is positive net exports. While exports of goods rose 4.65 percent in current dollars and 3.49 percent in 2005 dollars, imports increased faster, 6.43 percent and 3.86 percent respectively. This occurred in spite of a falling dollar which is supposed to increase exports and reduce imports. Multiply those numbers by four, too!

For years we have been warning that the growing trade deficits of the U.S. were a threat to the health of the U.S. economy. It caused the loss of millions of industrial jobs, depressed wages as the laid off industrial workers sought jobs in the service sector, and worsened the American distribution of income. It is urgent that we get trade into reasonable balance. If we succeed, the economy has a chance of recovering quickly because it would stimulate private investment , growth, and employment. These and other measures appear in our book, Trading Away Our Future (2008), which deals with the causes of and cures for the trade deficits.

The stock markets boomed on the news that GDP had grown at an annual rate of 3.5 percent. Pres. Obama and Dr. Romer, Chairwoman of the President’s Council of Economic Advisors, repeated the number. The latter should have known better. What should have been reported is that in the third quarter GDP rose, compared with the 2nd quarter, 1.06 percent in current dollars and 0.87 percent in 2005 dollars. The next day, after investors had time to read the release and the accompanying tables, the stock markets collapsed.

We have great respect for the Bureau of Economic Analysis and their statistical methods. But the extrapolation of the rate of growth into the future serves no purpose and adds nothing to the data and should be abandoned.

__________________________________________________

Link to BEA Report: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Note: It says, "Real gross domestic product...increased at an annual rate of 3.5 percent in the third quarter of 2009..." The use of the term Annual Rate means that GDP actually only rose by 0.87% during the 3rd Quarter of 2009. Thus, I concur. This is a shameful deception by the Obama Administration and he needs to be called on it.

It's also debatable whether when annualizing GDP growth one should take the previous three quarters plus the current one, or as makes no sense here, take the current quarter and expand it out by three future quarters at the same rate.

I don't see any consistency with this even with the BEA. In checking the BEA's 2nd quarter report, for example, GDP decreased by -0.8% in the 2nd Quarter but the annualized decrease was stated as minus -1.0%, not minus -3.2% as would be apples to apples. So what's up with that?

http://www.bea.gov/newsreleases/national/gdp/2009/gdp2q09_adv.htm

Alan Grayson: Lies, Tax Fraud and Deceit

Lies, Tax Fraud and Deceit

My theory is that Alan Grayson is a liar, a fraud, and a tax-cheat. Who is this guy? How did he really obtain his wealth? It’s certainly worth further investigation in light of the following.

Summary:

1. Roll Call lists Alan Grayson’s largest asset is a claim against Derivium Capital, the now bankrupt Ponzi scheme, in the amount of $34 million.
   
2. Central Florida Politics lists Alan Grayson as the Derivium Capital scams most frequent customer.
   
3. Roll Call lists Grayson’s net worth at $31.12 million. Grayson’s only other asset is said to be a trust fund worth $5 to $25 million.
   
4. Roll Call states that Grayson founded IDT Corp. in 1990. However, Wikipedia.org states that IDT was founded by Howard Jonas in 1990. An article from January 9, 1992, in the New York Times, entitled, “Hot-Wiring Overseas Telephone Calls”, backs up the fact that the company was founded by Howard Jonas, not Alan Grayson.
   
5. Per taxprophet.com, the IRS has targeted Derivium Capital’s loan transactions as taxable events.

Questionable Issues:

1. If Alan Grayson was not the founder of IDT Corp., then how did he obtain $29 million worth of stock between the years 2000 and 2005?
   
2. Since Alan Grayson was not the founder of IDT Corp., then why did he lie on his Congressional disclosure?
   
3. What was the cost basis of the stock which Alan Grayson sold to Derivium Capital for $26 million?
   
4. Did the IRS investigate Alan Grayson, and if so, how much was determined that Grayson owed in back taxes?
   
5. Did Alan Grayson voluntarily amend his tax returns to report the sale of stock to Derivium Capital?
   
6. What did Alan Grayson know about Derivium Capital at the time of the transaction?
   
7. Did Alan Grayson knowingly profit from an illegal Ponzi scheme?

Excerpts:

Rep. Alan Grayson (D-Fla.) $31.12 million

The Florida lawmaker’s largest asset stems from an apparent financial mistake.

Grayson lists a claim valued at $25 million to $50 million against Derivium Capital.

The now-bankrupt firm managed a Ponzi scheme in which investors, including Grayson, could turn over stock to Derivium in exchange for cash loans and redeem the value later if the stock prices increased. A South Carolina court ruled earlier this year that Derivium shareholders were collectively owed about $270 million in lost profits and that Grayson’s share would be about $34 million.

In addition to that claim, Grayson, an attorney who founded the telecommunications company IDT Corp. in 1990, lists a trust valued at $5 million to $25 million. The same trust was previously Grayson’s largest asset, with a value of $25 million to $50 million when he filed a candidate disclosure form in November 2008.

Scam’s Most Frequent Customer

Between 2000 and 2005, Grayson was the most frequent participant in Derivium’s “90-percent stock-loan” program, transferring about $29 million in stocks to Derivium and promptly receiving 90 percent of it – about $26 million – back in cash as “stock loans,” according to his court filings. In that sense, he lost only about $3 million out of pocket.

But Derivium had promised to pay Grayson profits on his stocks, if they appreciated enough over the three-year loan period to cover the amount of his “stock loans” plus interest. And Grayson picked some lucrative stocks. His $34 million in damages is based on the profits he should have received on stocks that rose in value – had Derivium not run out of cash and filed for bankruptcy.


Derivium Loan Update: IRS Targets Derivium Loan Transactions

Introduction: IRS has targeted taxpayers who have engaged in loan transactions through Derivium Capital by sending them Preliminary Notices, in late January, 2007, stating that the Derivium loan transaction may be a "tax avoidance" device.

In essence, IRS claims the Derivium loan transaction is really a taxable sale of securities at the time taxpayers received the proceeds, rather than a bona fide loan. IRS has an audit project underway in Sacramento, California, involving Derivium-type loans.

How It Works: In general, Derivium arranged loans for 90% of the value of a stock for an initial 3-year period at a compounded interest rate of approximately 10%. The loan is non-recourse, which means that at the end of the loan term, if the borrower cannot repay both principal and interest, the lender forecloses on the stock in full payment for the loan. The borrower has the option of rolling over the loan at maturity for an additional fee.

Note: Derivium has filed for bankruptcy and its client list has become public, thereby providing IRS with a road map of taxpayers who engaged in the loan transactions. Derivium is no longer in business.

Tax Consequences: IRS challenges the transaction and maintains a sale occurred in the initial year of the transaction on the following grounds:

1. The taxpayer was obligated to transfer the stock to Derivium, but repayment was optional because the purported loan was non-recourse to the taxpayer.
   
2. Taxpayers eliminated the risk of loss.
   
3. Principal payments are prohibited during the entire term of the transaction.
   
4. Legal title to the stock was transferred to Derivium.
   
5. The stock was treated as belonging to Derivium.
   
6. Derivium sold the stock to fund the transaction.

When the loan matures and if the borrower does not repay it, the lender forecloses on the security (the stock) and the borrower has a taxable event at that time. The stock is treated as sold for the full amount of principal and interest outstanding.

Thus, the borrower has a gain equal to the difference between the sales price (the full amount outstanding on the loan) and the borrower's basis in the security. The gain will usually meet long-term capital gain requirements under federal law and be taxed at 15%.

Sources:

http://centralfloridapolitics.com/2009/07/10/rep-alan-grayson-loses-millions-in-ponzi-scheme/

http://www.taxprophet.com/archives/Derivium_loan_2007_update.shtml

http://www.rollcall.com/features/Guide-to-Congress_2009/guide/38181-1.html?page=4#alangrayson

http://www.nytimes.com/1992/01/09/business/hot-wiring-overseas-telephone-calls.html

http://en.wikipedia.org/wiki/IDT_Corp.

http://innovation.cqpolitics.com/cq-rollcall/richest_members_of_congress_2008

Obama: Ready to Go!

Most American’s were ready for Obama to go before his term started. Now after nine month’s in office, the first affirmative action POTUS declares that he is ‘ready to go’. I don’t know where he’s planning to go, but I suspect that it’s not anywhere that the rest of America would care to venture. Let’s review Obama’s performance as CEO of the United States.

According to the Associated Press, the Federal Budget deficit has surged to an all-time high of $1.42 trillion as tax revenues plunged while the Obama Administration was spending massive amounts on the way to its undeclared destination. The Obama Administration has projected that its deficits will total $9.1 trillion over the next decade.

For 2009, the Government collected $2.10 trillion in revenues, a 16.6% drop from 2008. That was the largest percentage decline in records going back nearly seven decades. Meanwhile, Government spending last year jumped to $3.52 trillion, up 18.2% over 2008, the biggest percentage increase since a 23.4% jump in 1975.

In the private sector, a CEO with such a record would not be able to weasel his way out of being fired through clever rhetoric. In fact, a search committee would be formed, with haste, to locate a new CEO who specializes in turnarounds. If Obama were not the current POTUS, it is highly doubtful that a man with his lack of experience and qualifications would be sought for the job.

The Review

Let me get this straight, Obama, you lost $1.42 trillion in your first nine months. You generated revenues of just $2.10 trillion, while you spent $3.52 trillion? And your plan is to lose another $7.68 trillion for a total of $9.1 trillion over the next ten years? And now you say, “I’m fired up and ready to go?” Well, you can go alright. You can go right now. In fact, YOU'RE FIRED!

You know, there is a Constitutional provision whereby a POTUS may be forced to leave office before his term ends. It’s called impeachment. Don't rule it out. By the way, this isn't personal, it's business.

Reference:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10603996

Obamacare, Obamanomics and Inverse Logic

"If an object is a polygon then it is a triangle (false)."

You can’t solve a problem until it has been defined. The Federal government, once again, has failed to define the problem. Being led by the novice, Nobel Prize Winning, Barack Obama, the Congress has become another hostage on the road to Socialism. What is the real problem?

The Problem

Firstly, per the Bureau of Labor Statistics, since the start of the recession in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent (1).

Secondly, per my research in, “The IRS as Health Insurance Police,” there are currently 12.6 million delinquent taxpayers who owe the Federal Government $115.5 billion (2).

And finally, per my last blog, “Common Sense vs. Obamanomics,” where are the jobs (3)?

The Plan to Nowhere

The Government’s plan: Pass a massive health care bill with the ‘hope’ that (a) the 12.6 million will pay their back taxes along with the new increase for mandatory health care, and (b) the 15.1 million will miraculously find jobs (on their own) to be able to pay for their health care. Sounds to me like a plan going nowhere.

The Real Cost?

Based on my research in, “The Health Insurance Black Hole,” when it’s all said and done and we have Universal Health Care, the cost will be approximately $747 per month for an individual, and $2,990 per month for a family of four. That’s $35,880 per year for a family, and $8,964 for an individual (4). To me this is an outrageous increase from my present rate of $188 per month with an H.S.A. Plan. And according to Congress, this will reduce the deficit (which they have run up with reckless abandon) in the long-term.

I’m sure! Raising every American’s health insurance costs by $6,708 per year should reduce the deficit in the long run, but what does that do for our individual health? It seems to me that health care reform has just become a crafty way of raising taxes by playing on the sympathies of kind hearted American’s. No matter how you frame it, it’s a tax increase.

"If a policy is a tax increase then it is a tax cut (false)."

Questions Unanswered

1. How will the 15.1 million unemployed American’s pay for their health insurance? Will the employed have to pay more to cover them?
   



2. How will the 12.6 million who already owe back taxes be able to pay them while paying for the new health care tax?
   



3. If you subtract the 27.7 million who can’t pay for their health insurance, how much will it really cost those who are employed?

References:

1. http://www.bls.gov/news.release/empsit.nr0.htm



2. http://larrymwalkerjr.blogspot.com/2009/09/irs-health-insurance-police.html



3. http://larrymwalkerjr.blogspot.com/2009/10/common-sense-vs-obamanomics.html



4. http://larrymwalkerjr.blogspot.com/2009/09/health-insurance-black-hole.html