Small Business Tax & Toil
By: Larry Walker, Jr.
I have been contemplating all the blood, sweat, and tears shed by Small Business owners such as myself. Having been in business for the past 9 years, I have come to the realization that:
I am paying a hell of a lot in Taxes (and government mandated fees), and
I am feeling mighty underappreciated.
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 County business license fees, Federal and State license fees, County property taxes, State Sales Taxes, Federal Excise taxes on telephone, cell phone and internet usage, interest and principal payments on a Federal SBA loan and other business debts, professional liability insurance, health insurance, matching retirement contributions, etc. ... and then the actual operating expenses. When it's all said and done, in return for my contribution to society, I get to keep about 20% of my gross income (toil). But lets just keep the focus here on Social Security, Medicare, and Income 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
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. By nothing I mean that business owners do not get double the Social Security and Medicare benefits for paying twice what the average worker pays into the system. 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.
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.
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