This is an important question because it could be a defining issue in the next election. The most recent polls seem to indicate that over 70% of the population agrees with raising the tax rate on people making over $250,000 a year. There are many wealthy people that have also come out and said this is a good idea. So why are so many people not affected by the tax opposed to it?
Nobody likes taxes and most people agree we have a terrible system that needs to be fixed. But this debate centers around question does increasing taxes on the wealthiest American going to kill jobs? We can not allow people to make claims that raising taxes on the wealthy kill jobs without forcing them to supply some facts and examples of just how many jobs it kills. The Republicans claim this in one line statements but never back it up with any evidence. If they have evidence they need to demonstrate how raising taxes on a professional athlete, pop star, or the CEO of a publicly traded company kill jobs. I do not see how taxing these people a couple of percent more will cause them to lay off people or drastically change their spending habits. Really, how may people do a professional athlete or pop star employ? Are they going to fire their agent of gofer because they have to pay a little more in taxes?
The people that make the claim that taxing the wealthy kills jobs like to fall back to the story of a small business owner, “Joe the Plumber.” Small business owners represent only a small fraction of the country’s richest people. Less than 7% of the population has over a million dollars and less then 10% make more than $250,000 a year. Most people that have more than a million dollars are not running small businesses. If they are running a business at all it is not small. That being said I still need someone to explain how raising the small business owner’s taxes kills jobs. Some people think if they say it often enough it is true and they do not have to prove it.
But let’s look at how a small business works. They are in business to make a profit, so they only hire people that are going to add to the profit of their company. Let’s say all of the sudden they have pay another $6,000 in taxes. (I get this number by assuming a 3% increase in taxes on an additional income of $200,000 above the $250,000 that is not subject to the higher tax rate. This means the small business owner’s income would be at $450,000 putting him or her in the top 5% of all American wage earners.) Now being in the top 5% clearly indicates he is in a better financial position then the majority of the country, which is fine. What I want to know is how does laying off one of his employees help him with his net income? Let’s say the total compensation cost of that employee is $60,000 but he produces $70,000 worth of revenue. (Remember if he was not producing more revenue than his salary he would not be working in the first place.) So how do you solve your $6,000 additional tax bill by loosing a $10,000 profit earned off the back of the employee? If he fires the employee he will have $10,000 less in revenue but his taxes only go down $3,100. He now has $6,900 less in net income! The only way he avoids that is by assuming all that work himself (hard to believe since most small business owners already work 60 plus hour weeks) or he can pass the work on to his other employees, to whom he must pay overtime, eating into his profits. Anyway you look at it laying someone off does not help him with his $6,000 additional tax bill. Clearly the additional tax does affect how much he the owner will take home. So the real question is how much will this additional $6,000 in taxes affect his spending habits? Remember he is making $450,000 a year.
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