# How does taxing personal income above $200/$250k hurt small businesses? **URL:** \ **Category:** Factual Questions\ **Created:** [October 11, 2010, 10:30pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830 "2010-10-11T22:30:36Z")\ **Posts on this page:** 16\ **Page:** 2
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [October 14, 2010, 2:32am UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/21 "2010-10-14T02:32:02Z")
> [@dracoi](#): > > The highest marginal tax rate on individuals is 33%. [Is it not 35%](http://www.bankrate.com/finance/taxes/2010-tax-bracket-rates.aspx), or am I misunderstanding something? ---
**Author:** ![monavis](https://avatars.discourse-cdn.com/v4/letter/m/e0b2c6/32.png) [@monavis](https://boards.straightdope.com/u/monavis)\ **Post date:** [October 14, 2010, 12:31pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/22 "2010-10-14T12:31:50Z")
First I must admit I am not knowledgeable about business of any kind, but it is my understanding, that the $250,000.00 is net profit. So the person with that kind of money would not need that just to live on. I can understand why if they want to expand their business it would be of concern,but for my self, if I made that kind of money a year, I wouldn’t even try to expand. I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [October 14, 2010, 1:24pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/23 "2010-10-14T13:24:08Z")
> [@monavis](#): > > First I must admit I am not knowledgeable about business of any kind, but it is my understanding, that the $250,000.00 is net profit. So the person with that kind of money would not need that just to live on. I can understand why if they want to expand their business it would be of concern,but for my self, if I made that kind of money a year, I wouldn’t even try to expand. I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. I agree with you, but the question in my mind is is it good for the economy. If we simply reduce the taxes on upper income people, it wouldn’t help the economy (at least in these capital-rich days with no one actually investing.) But a targetted accelerated write-off schedule for capital purchases might make sense in this same situation. Then, we can phase it out when the economy improves. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [October 14, 2010, 4:42pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/24 "2010-10-14T16:42:59Z")
> [@amarone](#): > > > [@dracoi](#): > > > > The highest marginal tax rate on individuals is 33%. > > [Is it not 35%](http://www.bankrate.com/finance/taxes/2010-tax-bracket-rates.aspx), or am I misunderstanding something? Um… no… you’re right. You’ve just confirmed that my brain is fried. Someone earning 250k is at 33%, but the maximum is definitely 35% and somehow I failed to keep those things separate. :smack: Part of the problem is that the numbers fit the framework I was trying to explain - Corporate tax rates average out to 35%, but are not always upward ([see here](http://www.irs.gov/instructions/i1120/ch02.html#d0e2978)). The result tends to be a higher rate for C Corporations, especially at the level of people who are worried about a 250k tax break. In any event, it’s obvious that I need to leave the more abstract analysis until after the 15th and get back to crunching solid numbers… ---
**Author:** ![SmartAlecCat](https://avatars.discourse-cdn.com/v4/letter/s/67e7ee/32.png) [@SmartAlecCat](https://boards.straightdope.com/u/SmartAlecCat)\ **Post date:** [October 15, 2010, 2:13pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/25 "2010-10-15T14:13:54Z")
> [@dracoi](#): > > You now have $195,000 in profit flowing onto your personal tax return, which is clearly enough to put you up over $250k in earnings if you take even a small salary. Just to be clear, we are talking about increasing the tax for _only_ the amount of AGI (i.e. after deductions, of which small business owners have many opportunities for) _above_ $200/200K from 35% to 39.6%. (Well, allowing the previous cut to lapse causing taxes to return to the previous rate). The folks who go barely over that line will have a very small amount of their income taxed less than 5% more. We aren’t talking, as many try to couch this, of cutting taxes on people making less than $200/250K and not cutting them for people making more than that amount. The Obama position is to cut _everyone’s_ taxes, but only on amounts less than $200/250K. Here’s a nice blog post about this: > **[Pat Toomey's Epistemic Closure](https://newrepublic.com/article/78304/pat-toomeys-epistemic-closure)** > > In 1993, conservatives unanimously predicted that Bill Clinton's tax increase on incomes over $200,000 would slow growth, reduce tax revenues, and likely cause a recession. Instead, of course, the economy boomed and revenue skyrocketed. Then George... > [@](#): > > In 1993, conservatives unanimously predicted that Bill Clinton’s tax increase on incomes over $200,000 would slow growth, reduce tax revenues, and likely cause a recession. Instead, of course, the economy boomed and revenue skyrocketed. Then George W. Bush cut upper-bracket tax rates, and conservatives predicted that this would cause the economy to grow even faster. Instead, the economy experienced the first business cycle where income was lower at the peak of the business cycle than it had been at the peak of the previous business cycle. It is rare that events so utterly repudiate an economic theory. ---
**Author:** ![monavis](https://avatars.discourse-cdn.com/v4/letter/m/e0b2c6/32.png) [@monavis](https://boards.straightdope.com/u/monavis)\ **Post date:** [October 16, 2010, 12:32pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/26 "2010-10-16T12:32:39Z")
> [@Ludovic](#): > > > [@monavis](#): > > > > First I must admit I am not knowledgeable about business of any kind, but it is my understanding, that the $250,000.00 is net profit. So the person with that kind of money would not need that just to live on. I can understand why if they want to expand their business it would be of concern,but for my self, if I made that kind of money a year, I wouldn’t even try to expand. I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. > > I agree with you, but the question in my mind is is it good for the economy. > > If we simply reduce the taxes on upper income people, it wouldn’t help the economy (at least in these capital-rich days with no one actually investing.) > > But a targetted accelerated write-off schedule for capital purchases might make sense in this same situation. Then, we can phase it out when the economy improves. Remember Bush JR. lowered the taxes and we can see what shape the economy was in when he left office, What ever happened to the surplus the Reps. were concerened about? When Bush senior left office the mantra was “The economy stupid” So giving a tax break to the rich didn’t make for more jobs,why should it now? Just wondering! ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 16, 2010, 10:59pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/27 "2010-10-16T22:59:48Z")
> [@Fear\_Itself](#): > > And why would that be a problem for small business? Is there a shortage of capital? Small businesses are chronically undercapitalized. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 16, 2010, 11:08pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/28 "2010-10-16T23:08:05Z")
> [@monavis](#): > > First I must admit I am not knowledgeable about business of any kind, but it is my understanding, that the $250,000.00 is net profit. So the person with that kind of money would not need that just to live on. I can understand why if they want to expand their business it would be of concern,but for my self, if I made that kind of money a year, I wouldn’t even try to expand. I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. The motivation is not just to be wealthy - it’s to build something. When you get to the point as a small businessman where people are depending on you for their livelihoods (not just employees, but suppliers and customers), you start to feel a lot of pressure to expand. Sometimes economies of scale push you to expand to remain competitive. Perhaps your competitors are killing you because they’re buying supplies in bulk and you’re not big enough. So you need to expand to stay alive at all. But you have to understand that it’s not people like you who tend to start small businesses in the first place. If you’re happy with a modest income, and have priorities other than work, you’re simply not a small business type. The kinds of people who start small businesses are exactly the people who do want to expand when the opportunity arises. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [October 16, 2010, 11:24pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/29 "2010-10-16T23:24:46Z")
> [@Ludovic](#): > > > [@Fear\_Itself](#): > > > > Is there a shortage of capital? > > No, of course not. In fact, we should keep the tax rates low, because low tax rates always encourage investment by providing capital. Keeping the tax rates low will allow us to continue to enjoy the unprecedented level of capital investment we are experiencing today. Your sarcasm is noted. Sounds like the real problems are in badly designed business deductions. Is this a legacy of Reagan’s brilliant (note: more sarcasm) plan to close loopholes & simplify the tax code? I believe in very progressive income taxes, but I also believe that corporate incomes should be taxed according to a generous definition of “net.” Sounds like we’re not doing that. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 16, 2010, 11:54pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/30 "2010-10-16T23:54:32Z")
> [@Sam\_Stone](#): > > > [@monavis](#): > > > > First I must admit I am not knowledgeable about business of any kind, but it is my understanding, that the $250,000.00 is net profit. So the person with that kind of money would not need that just to live on. I can understand why if they want to expand their business it would be of concern,but for my self, if I made that kind of money a year, I wouldn’t even try to expand. I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. > > The motivation is not just to be wealthy - it’s to build something. When you get to the point as a small businessman where people are depending on you for their livelihoods (not just employees, but suppliers and customers), you start to feel a lot of pressure to expand. > > Sometimes economies of scale push you to expand to remain competitive. Perhaps your competitors are killing you because they’re buying supplies in bulk and you’re not big enough. So you need to expand to stay alive at all. > > But you have to understand that it’s not people like you who tend to start small businesses in the first place. If you’re happy with a modest income, and have priorities other than work, you’re simply not a small business type. The kinds of people who start small businesses are exactly the people who do want to expand when the opportunity arises. That is complete nonsense. You feel no pressure at all to expand without a customer base and an increasing demand. Because you have employees who depend on you , does not stress you to expand. If it does, you are a crappy businessman. The opportunity arises when you are able to safely predict you can sell more product than you are making. the rest is irrelevant. Not every business wants to compete with Walmart. They know better. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 17, 2010, 5:20am UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/31 "2010-10-17T05:20:28Z")
> [@gonzomax](#): > > That is complete nonsense. You feel no pressure at all to expand without a customer base and an increasing demand. Because you have employees who depend on you , does not stress you to expand. If it does, you are a crappy businessman. > The opportunity arises when you are able to safely predict you can sell more product than you are making. the rest is irrelevant. > Not every business wants to compete with Walmart. They know better. There are different types of small business. Some never expand - a typical example would be a small mom-pop plumbing business. Most small service-oriented businesses that depend on the labor of the business owner to carry out the service would fall into this category. But other businesses have to constantly re-invest in order to survive, because the market is not static. You either grow or die. Most manufacturing businesses are like that - products have to be updated, you have to invest in R&D, and the market is almost never static. Either there is more demand for your product than you can supply, or you have more capacity than the market dictates. When the latter happens, you have to lay off people. And one of the things about small business is that layoffs are _personal_. Your employees become your friends. I’ve been in that position before, and it’s very unpleasant. So it does put pressure on you to keep pushing forward to expand your cash flow and profit. The other part of this you have to understand is that small businesses are almost always undercapitalized. Small businesses are often only one bad quarter away from not being able to make payroll. Their ability to expand, improve, or give raises to their staff is constrained by cash flow. Have you ever owned a small business? The reality is a lot more complicated and difficult than the simple caricatures politicians and partisans like to fling about. ---
**Author:** ![etv78](https://avatars.discourse-cdn.com/v4/letter/e/d78d45/32.png) [@etv78](https://boards.straightdope.com/u/etv78)\ **Post date:** [October 17, 2010, 8:02am UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/32 "2010-10-17T08:02:42Z")
{QUOTE=monavis;13023761] I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. [/QUOTE] Uhm, if money =/= happiness, how EXACTLY would capitalism work? :rolleyes: :dubious: ---
**Author:** ![monavis](https://avatars.discourse-cdn.com/v4/letter/m/e0b2c6/32.png) [@monavis](https://boards.straightdope.com/u/monavis)\ **Post date:** [October 17, 2010, 12:43pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/33 "2010-10-17T12:43:12Z")
> [@Sam\_Stone](#): > > > [@monavis](#): > > > > First I must admit I am not knowledgeable about business of any kind, but it is my understanding, that the $250,000.00 is net profit. So the person with that kind of money would not need that just to live on. I can understand why if they want to expand their business it would be of concern,but for my self, if I made that kind of money a year, I wouldn’t even try to expand. I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. > > The motivation is not just to be wealthy - it’s to build something. When you get to the point as a small businessman where people are depending on you for their livelihoods (not just employees, but suppliers and customers), you start to feel a lot of pressure to expand. > > Sometimes economies of scale push you to expand to remain competitive. Perhaps your competitors are killing you because they’re buying supplies in bulk and you’re not big enough. So you need to expand to stay alive at all. > > But you have to understand that it’s not people like you who tend to start small businesses in the first place. If you’re happy with a modest income, and have priorities other than work, you’re simply not a small business type. The kinds of people who start small businesses are exactly the people who do want to expand when the opportunity arises. I have a relative who has a small business and expanding just meant more expense. too much over head when times slowed down. Now they are breaking even because they are well respected in their community. They would be very happy to net $250,000.00 a year! ---
**Author:** ![monavis](https://avatars.discourse-cdn.com/v4/letter/m/e0b2c6/32.png) [@monavis](https://boards.straightdope.com/u/monavis)\ **Post date:** [October 17, 2010, 12:53pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/34 "2010-10-17T12:53:15Z")
> [@etv78](#): > > {QUOTE=monavis;13023761] I guess that is because I never had a goal in life to be wealthy, as I do not think wealth brings happiness. I look to the celeberties and see how their lives are, and would not want that kind of life…of course that is just me. Uhm, if money =/= happiness, how EXACTLY would capitalism work? :rolleyes: :dubious: [/QUOTE] In many cases Capitalism = greed. The big businesses have a way of running small businesses out of business! I am not against Capitalism but It is not necessarily the greatest thing yet, perhaps if some of the bigger businesses were a help to the smaller ones it would help;but they won’t it would mean cutting into their unreasonable profits!. How many stores are empty that were once small Mom and Pop stores run out by nation wide businesses? The more money people have the more they do not want to pay taxes to help the little guy. I guess it is part of the human make up. Money becomes more important than people! ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [October 17, 2010, 11:33pm UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/35 "2010-10-17T23:33:11Z")
> [@Sam\_Stone](#): > > Have you ever owned a small business? The reality is a lot more complicated and difficult than the simple caricatures politicians and partisans like to fling about. So spare us the simplistic solutions like taxing 4% less of the 250,001st dollar. We’ve talked about real changes to the tax code to help businesses. What do you think of that sort of thing? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 18, 2010, 12:28am UTC](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830/36 "2010-10-18T00:28:21Z")
I never said anything about that. I was answering the question in the OP. If you want to debate solutions, Great Debates would be the place. [Previous page](https://boards.straightdope.com/t/how-does-taxing-personal-income-above-200-250k-hurt-small-businesses/556830.md?page=1)