Tuesday, December 11, 2012

Ohlemacher does Steno

On a day the Chronicle of Higher Education did a salary survey , finding 36 private (non-profit) college presidents making over a million last year, the Asspress excreted an atrocity that will have to bump it. Sorry, Bob Kerrey! Your $3 million pay will be the story another day.

Stephen Ohlemacher has done it again. Every easily refuted chestnut about tax hikes and small business you ever heard, taken down with a breathless stenography worthy of Paula Broadwell.

I could stop here, but why not sear your eyeballs with the gory details? Let's roll:

President Barack Obama's plan to increase taxes on top earners would have only a small impact on the nation's economy, according to congressional budget experts. But don't tell that to small business owners facing a tax hike.
Obama's proposal would hit about 940,000 people who report business income on their individual or household returns, says the Joint Committee on Taxation, the official scorekeeper for Congress. That's only 3.5 percent of the people who report business income, but those business owners are projected to earn 53 percent of the $1.3 trillion in business income that will be reported on individual returns next year.
That, Republicans in Congress argue, makes those business owners an important engine for economic growth and job creation.
They recite it as gospel: Paying higher taxes will reduce the amount of profits business owners would otherwise re-invest in their companies, making them less likely to expand and hire more workers. Many economists agree that tax increases in general limit economic growth. But there are big disagreements about magnitude - how much relatively small changes in the top two income tax rates would affect the economy and job creation.

First some stuff that, if read closely, confirms income concentration. Nice start, but the Secret Language of Newspapers is already getting in the way. Then he gets into "Many economists".
Strip out the he said/she said - as Ohlemacher doesn't even try - and you find that there is no evidence that a change in the top tax rate will affect anything. Nada, zip, squat. Ohlemacher more or less concedes this - with an estimate that the effect will be 1/14th  of the total if everything bounces back. A litttle later, Ohlemacher moves into the shallow end of tax policy:

Qualified dividends, which are now taxed at a top rate of 15 percent, would be taxed as ordinary income for top earners, or at a top rate of 39.6 percent.
That, some business owners complain, would leave them with less money to hire new workers or keep the ones they have.
"We're trying to encourage people to go out and hire and take risks," said Brian Reardon, executive director of the S Corporation Association. "If you are reducing the marginal value, you are reducing the incentives for folks to take that risk."
An S corporations is a common business structure in which profits flow directly to shareholders who report the income on their individual tax returns.
Business owners note that they often pay taxes on profits they don't necessarily receive. For example, if you borrow money to start or expand your business, you can use some of your profits to repay the loan, but only the interest portion of the loan payment is tax deductible.
When business owners use profits to buy new equipment or make other upgrades, it often takes several years to write off the cost of those upgrades, depending on depreciation rules.

This sounds like it follows smoothly, but actually takes some sharp bends. Dividend tax rates are utterly irrelevant to S-Corporations. Their distributive share is taxed based on the underlying income, and owner/officers are paid taxable/deductible salaries similar to other employees. One thing about S-Corps: They have a unique loophole in Medicare taxes. Unless it's paid in salary, the owners income is not subject to FICA or Medicare tax. There was some noise about this earlier this year when Newt Gingrich's tas returns came out. There have been several attempts to close this loophole, but it seems the S-Corpation Association is bulletproof. It even survived the new Medicare surtax untouched.

This stuff about startup expenses is 100% hooey. Sure, the expenses you incur before you start a business are amortized undet Sec. 197 over the first 15 years of the business. How are you going to earn over $400,000 in a business you haven't even started?

Now we get to the stenography.

Dan McGregor, chairman of McGregor Metalworking Companies in Springfield, Ohio, said he and the other six shareholders in the business are looking at a tax increase of $250,000 to $300,000 next year under Obama's plan.
Under Obama's plan to increase the top two income tax rates, a taxpayer would have to have an income of around $4 million - depending on how it's structured - to face a tax increase of $250,000.
McGregor's company, which has 365 employees at five locations, does about $80 million a year in sales, McGregor said. Each year, a portion of the profits are distributed to shareholders, along with money to pay taxes. The rest, he said, is invested back into the company.
If taxes go up, distributions to shareholders must go up to pay the higher taxes, leaving less money to reinvest in the business, McGregor said.
"I feel a $40,000 reduction is the loss of one job, so if it's a $200,000 tax increase, that's five jobs," McGregor said.

First, for an S-Corporation, 3% is the increase - we covered the Medicare surtax loophole already. So that tax increase implies profits of about $9,000,000, or $25,000 per employee. That's profits - because all the shareholders/officers salaries are deductions. So he's saying he could afford to give everybody in the company a $25,000 raise! But he won't, because it's more important that the McGregor family each gets their million bucks a head distribution. It's a very old company. If they need more capital to expand, they can raise or borrow it. Also, accelerated depreciation means that if they really were plowing everything back in, the deductions would pile up.

Is this one of those places where things are so expensive that a million bucks a year is just getting by?

In Springfield, the median house price is under $60,000.

We've all heard about these "typical small businessmen" who turn out to be spokesmen for some wingnut front group. Is Dan McGregor? Hard to tell right now. I will note that he seems to be in charge of something called "Christian Mentoring"

Not sure what that has to do with this other Christ, who said:

Sell your possessions and give to charity; make yourselves purses which do not wear out, an unfailing treasure in heaven, where no thief comes near, nor moth destroys."

(of the Hibbing Zimmermenschen. Heh indeedy)

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