Small Businesses Brace For Tax Battle

Washington Post: Individuals, Business Groups Know They Are A Target For Obama's Tax Increases

(Washingtonpost.com)  This story was written by Lori Montgomery and V. Dion Haynes.

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Gail Johnson doesn't think of herself as wealthy. The former pediatric nurse has spent 20 years building a chain of preschools and after-school programs that accommodate sick children so working parents can keep their jobs.

But, like most small-business owners, Johnson reports her profit on her personal tax return. In a typical year, she and her husband make more than $500,000, according to her accountant, a figure that throws them squarely into the ranks of the richest Americans -- and makes them a prime target for the Obama administration's tax policy.

Since last year's campaign, President Obama has vowed repeatedly not to increase taxes for families making less than $250,000 a year. That pledge, while politically popular, has left him with just two primary sources of funding for his ambitious social agenda: about 3 million high-earning families and the nation's businesses.

Johnson, with her company, falls into both categories. If Obama's tax plans are enacted, her accountant estimates that her federal tax bill -- typically, around $120,000 a year -- would rise by at least $23,000, a 19 percent increase.

"You hear 'tax the rich,' and you think, 'I don't make that much money,' " said Johnson, whose Rainbow Station programs are headquartered near Richmond. "But then you realize: 'Oh, if I put my business income with my wages, then, suddenly, I'm there.' "

Across the nation, many business owners are watching anxiously as the president undertakes expensive initiatives to overhaul health care and expand educational opportunities, while also reining in runaway budget deficits. Already, Obama has proposed an extra $1.3 trillion in taxes for business and high earners over the next decade. They include new limits on the ability of corporations to automatically defer U.S. taxes on income earned overseas, repeal of a form of inventory accounting that tends to reduce business taxes, and a mandate that investment partnerships pay the regular income tax rate instead of the lower capital gains rate.

A Permanent Target

Business groups say they're bracing for even more battles with the administration.

"They're desperate for revenue. And therein lies the concern of the broader business community," said R. Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce.

"We're going to be a permanent target, and we understand that," added Catherine Schultz, vice president for tax policy at the National Foreign Trade Council. "The way they see it, corporations don't vote."

Obama has proposed some business tax breaks, but those proposals have been dwarfed by the tax increases under consideration, particularly his plan to let tax cuts enacted by former president George W. Bush expire for high earners.

Administration officials say they would simply restore rates in effect during the Clinton administration for every dollar of income over $250,000 ($200,000 for individuals). The plan is intended to counter years of rising inequality in which wealth has been concentrated at the top of the income scale.

From 1979 to 2006, after-tax incomes rose by $863,000 -- more than 250 percent -- for the top 1 percent of households, compared with $9,200 -- or 21 percent -- for middle-income households, according to a recent analysis of IRS data by the nonpartisan Congressional Budget Office. By allowing the Bush tax cuts to expire next year for upper-income taxpayers -- but keeping the cuts that benefit middle-income families -- Obama has said he hopes to "restore some balance to the tax code."

A Big Issue for Small Firms

Republicans and business groups argue that Obama's plan to tax the rich would strike some of the nation's most productive businesses. Though certain very large companies must organize as separate entities that are taxed twice -- on profits and shareholder dividends -- most smaller businesses opt to be taxed only once by reporting their profits on the personal tax returns of their shareholders.

Most of these businesses make much less than $200,000 a year, though the precise figure is in dispute. Treasury Secretary Timothy F. Geithner has said the tax increase would affect about 2 percent of taxpayers with small-business income. An analysis by the Bush Treasury Department found that 7 percent of filers with business profit were in the top brackets in 2006. More recently, the nonpartisan Joint Committee on Taxation, which evaluates tax policy for Congress, projected that 3 percent of filers with business profits -- about 750,000 taxpayers -- were likely to face higher taxes in 2011 under Obama's proposal.

Whatever the figure, Republicans argue that those who fall into the upper brackets tend to be firms with the greatest capacity for job creation. In a 2007 survey, the National Federation of Independent Business found that about 15 percent of small-business owners -- and half of those with at least 20 employees -- said they expected their household income to exceed $200,000. In the Washington region, Census figures show one in seven families earn more than $200,000 a year.

"For the vast majority of people who earn less than $200,000, raising taxes on higher earners might not sound so bad. Yet a lot of small businesses are in that category," Sen. Charles E. Grassley (R-Iowa) said in a recent radio address. "Tell these business owners their taxes will go up; odds are, they'll cut spending . . . stop hiring and lay people off."

That's what worries Johnson. She conceived her business in 1989 while teaching at Virginia Commonwealth University. Through her nursing students' clinical practices, she saw firsthand the problems that a sick child can pose for working mothers, causing them to miss work and putting their jobs at risk. "I started out thinking I could provide a service for kids with acute medical needs," she said.

The idea eventually spawned nine, full-service campuses that serve sick and well children from infancy through age 14. New schools opened last year in Austin, Charlotte and Gainesville, Va., each with about 75 employees.

Johnson declined to say whether she voted for Obama. But she said she ignored his tax plans until her husband, who handles real estate and construction for the schools, mentioned it one day. "I've since talked to my accountant," she said. "And, oh, my gosh!"

The accountant, Carroll Hurst, said Johnson is unlikely to owe any federal taxes this year due to accounting changes that confer a one-time tax benefit. But in a typical year, he said, Johnson and her husband earn about $515,000 from various entities related to the schools. They claim around $90,000 in deductions -- much of it contributions to charity -- reducing their taxable income to around $425,000. Johnson said the sum they take home in wages is "substantially less."

In a typical year, Johnson's federal tax bill would be about $120,000. But starting in 2011, the higher marginal rates would add about $13,000 a year, Hurst said. Capping the value of itemized deductions at 28 percent would add another $10,000, for a total increase of $23,000.

And Johnson's tax bill stands to grow dramatically if Obama were to revive a plan to apply Social Security tax to income over $250,000 instead of capping it at the current $106,800. Because Johnson is an employee and an employer, she would have to pay both portions of the tax, Hurst said, tacking another $30,000 onto her bill.

Johnson said such an increase would force her to consider scaling back operations.

"You can try to pass it on to consumers. But if you raise tuition, you put pressure on family budgets," she said. "For us, we're caught between the devil and the deep blue sea."

Other business owners are also nervous. Jim Murphy, president of EST Analytical in Fairfield, Ohio, which sells analytical instruments to environmental testing labs and pharmaceuticals, said his company is struggling in the sluggish economy. But if profit returns to pre-recession levels -- about $455,000 -- Murphy said his accountant estimates that Obama's proposals could add $60,000 to his $120,000 tax bill.

"The misconception is that guys like me take [our profits] and put it into our pockets," said Murphy, who employs 47 people. "But the money the company earns in a given year is used to buy additional inventory so we can grow and hire." A 50 percent tax increase, he said, would be "really painful."

Not all business owners are complaining. Marc Friedman, who earns about $350,000 a year operating Ace Hardware stores in the District and Baltimore, said he wouldn't mind the extra $35,000 to $50,000 he stands to lose to the IRS.

"The small-business community feels there's a disproportionate amount of tax placed on us, and it's true," Friedman said.

But government services "can't be paid for equally by everyone," he said. "It's a big burden, but we're fortunate to be successful."

[sjc_1]

Functional Progressive Taxation, no brackets...no deductions.

Enter how much you made, look on the curve and that is how much you pay.

It is automatic, so you to not owe them and they do not owe you.

[rain_garden]

I am deeply bothered by what your article did not say and what it implied. You never said what Gail Johnson earned yet you wrote, ?Gail Johnson, who owns an education company, would see her federal tax bill grow by about 19 percent if Obama?s plan is enacted.? You wrote, her taxes ?would rise by at least $23,000, a 19 percent increase.? But you wrote, ?In a typical year, she and her husband make more than $500,000, according to her accountant?.

Please make it clear, are the taxes her taxes or are they the combined taxes of her and her husband. The article talks about her tax bill, but it never mentions her income. Based on your article, Gail Johnson could have earned $10.000 and her husband could have earned $490,000.

Your article is blaming the Obama administration for requiring higher taxes for the wealthy, but your article does not mention how the United States will pay for the excesses of the Bush administration. Soldiers are losing their benefits and people are losing their homes. Where does the Washington Post and Gail Johnson think the money will come to help solve these and our major economic problems. We have had at time of excess expenses and tax cuts for the wealthy. It is time the wealthy pay what they can afford.

I find it interesting that we have major problems caused by the greed of the wealthy yet the Washington Post has published an article trying to raise sympathy for a family earning $500,000 pea year and the Post implies it is due to the lady?s business. Where does this lady live, that she thinks that $500,000 per year is not wealthy. The Washington Post should understand the problems caused by greed in America.

[specialty8]

Getem Obama, tax them till it hurts or just close up. Shame on anybody that works hard to get ahead in life and provides jobs.

[spaceatoms]

The problem with the United States isn't taxing the person making 250,000; and Joe the Plumber is a sarcastic way of saying that the government has control. The problem with the United States is Wall Street, investing and the bailouts and continuing inflation and irresponsible acts like Enron spending the 401k, and fund managers bilking the accounts while we sleep tightly. There is no way that bailing out AIG made any sense whatsoever. If my business fails then there is a zero chance that I get a bailout. I will repeat it zero, and knowing this makes me work harder. Its called motivation, and now its going to cost our country GM. Its getting ridiculous out there.

[KailuaDan]

As a physician owner of a private medical practice, I am fortunate and have a good standard of living to support my family, and to have the opportunity to help others every day. This whining about the negaitve effect of rising tax rates on small business and the economy is misplaced and mistaken. Business owners need to be honest with the rest of the country. There is only one reason those of us with taxable incomes above $250,000 resist sharing a portion of our exceptionally large personal incomes... G_R_E_E_D.

A strong desire for riches causes some business owners to "live-large" by hoarding resources or by borrowing and spending beyond their means. Confusing luxuries and greed with necessities and honorable living leads to trouble. Lower tax rates on business owners fail to discourage the plundering of company profits in the selfish desire for rapid self-enrichment. We are seeing the results of this situation throughout our economy. What is the alternative to trying to making a quick buck?

Higher taxes at upper incomes, ENCOURAGE business owners to reduce tax payments by investing in what is truly important - their business, their customers, their employees and their future assets. Rather than pay more to Uncle Sam, a wise business owner chooses to use profits to buy equipment, increase inventory, hire more staff, or provide them better benefits. These decisions will reduce the owner's income, but the business itself is strengthened, more capital flows into the healthy productive economy, fewer resources are diverted into the toxic luxury economy, and our country is strengthened. By taking this path, the wise owner has the pride and satisfaction that comes with good leadership.

Instead of choosing long term stewardship of the business, the greedy owner gives in to immediate gratification, diverting profits into the "luxury lifestyle", and their companies suffer - deservedly so. Let us stop whining about not being able to buy ourselves more toys to play with, and start living within our means and helping others. By doing so we can all win and have fun. There can be no end to greed, and haven't we seen enough of it already?

[tiredofthebs]

Tax battle? The solution for small business owners is simple. CUT STAFF. We live in a CAPITALISTIC SOCIETY. That means that investors & business owners do what they do to MAKE A PROFIT. And if that means that someone has to be unemployed or lose their home to make this profit, IT'S GONNA HAPPEN. That's nein' proven everyday in this economy. I'm no GOP, but I agree that this approach is wrong. What happened to examining gov't spending line by line?!

[valh1]

I don't know why this Beckie person thinks she is so clever with the chirping crickets thing. It's not new or trendy. It's passe, so try to come up with something a bit more up to date.

hdc77494, you are on the mark! 100% agreement with you. Keep up the good fight and maybe some of these mind-numbed dolts will wake up in 2012.

[hdc77494]

The top 10% in income (above $92K) paid 60% of all income taxes. The top 1% pay about 28% of all income taxes. The bottom 50% pay zero. Raising the tax rate on the successful doesn't put money in the pockets of the poor or increase their paychecks. If you tax doctors or lawyers at a higher rate, they begin to cut back on work, and the hours of their spport staff. After all, if you got to keep 40% of your overtime check, you'd probably take a few more weekends off because the extra cash isn't worth the time. When you multiply the effect with the cut in support staff hours, you have a huge impact.
According to Mr Bloomberg, 40,000 people in New York City pay more than 50% of all the income taxes to support the city. 40,000 pay half the support for 8 million. There's a real problem with this picture. Instead of cutting spending, government leaders are calling the most successful people in the country evil, crooked, and even unpatriotic. They're killing the engine of innovation that makes possible all the wealth and jobs. When was the last time you were hired by a poor person? If your employer was unprofitable, how secure was your job? Wake up people

[albert571]

Wow do you know how much 0% of $500,000.00 is? And you live just fine off $.0? Are you a Democrat?

[djlynch1951]

If I earned $500,000 I honestly would not know what to do with it. I live just fine on a0% of that and If I earned more I'd probably save it or give it to my church. And I would not miss $23,000 if I earned $500,000. If this lady really likes what she'd doing she will continue to do it even if her tax bills goes up.

[sabre1111]

Gee, wasn't it Clinton that had the pen in his hand when NAFTA was signed? It wasn't Bush that signed it, and NAFTA is considered the reason for all the job loss right? How's Obama's plan to get rid of NAFTA coming along? Oh, that's right, he lied about that one, NAFTA is as strong as ever under Obama.
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Posted by promaclaura


But...but...but...Clinton!!!

As usual, another Repub not willing to take their share of the blame.

[BeckieBest]

Gee, still no answer on the wage of your highest paid employee, come on, we want to hear about how your revving up the middle class, providing those "high" paying jobs for the middle class.

ps Since Clinton passed NAFTA, Bush HAD to give tax cuts to retain the remaining jobs that ol Clinton "greased" up and let slip away. I never said that Bushes tax cuts "created jobs", as a matter of fact if Bush hadn't offered tax breaks we'd be worse off and with a lot less jobs. Just watch what happens numbnuts, taxes will be raised and even the "retained" jobs will go bye-bye. Oh but we'll have your ice cream stand jobs or maybe it's a car wash you run.
Posted by promaclaura at 7:22 PM : Apr 27, 2009



Sorry Skippy but that's just a bunch of hoooohaaa! Economists from both sides of the isle say that NAFTA has brought a net job gain. Even John McCain said so! You'll have to try harder if you want to blame Bush's failures on Obama.

So how many jobs did those Bush tax cuts for the rich create?

Hello?

Anyone home?

Crickets............

lol! lol! lol!

hahahahahahaha!!!!

[BeckieBest]

Speaking of the same tired song, how many jobs did the Bush tax cuts for the rich create?

Hello?

Nothing?

Crickets.................


lol!
Posted by BeckieBest at 7:10 PM : Apr 27, 2009

Gee, still no answer on the wage of your highest paid employee, come on, we want to hear about how your revving up the middle class, providing those "high" paying jobs for the middle class.

ps Since Clinton passed NAFTA, Bush HAD to give tax cuts to retain the remaining jobs that ol Clinton "greased" up and let slip away. I never said that Bushes tax cuts "created jobs", as a matter of fact if Bush hadn't offered tax breaks we'd be worse off and with a lot less jobs. Just watch what happens numbnuts, taxes will be raised and even the "retained" jobs will go bye-bye. Oh but we'll have your ice cream stand jobs or maybe it's a car wash you run.
Posted by promaclaura at 7:22 PM : Apr 27, 2009



Sorry Skippy but that's just a bunch of hoooohaaa! Economists from both sides of the isle say that NAFTA has brought a net job gain. Even John McCain said so! You'll have to try harder if you want to blame Bush's failures on Obama.

So how many jobs did those Bush tax cuts for the rich create?

Hello?

Anyone home?

Crickets............

lol!

[promaclaura]

Oh please, Bush Jr. got caught in the "perfect storm" that started under Clinton's NAFTA go ahead.
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Posted by promaclaura


And there you were, complaning about all the people still harping about Bush. But its OK to still blame Clinton, right? LOL.
Posted by sabre1111 at 7:13 PM : Apr 27, 2009



It's as if Bush never was President.

Well he did spend most of his term on vacation.

lol!
Posted by BeckieBest at 7:15 PM : Apr 27, 2009

Gee, wasn't it Clinton that had the pen in his hand when NAFTA was signed? It wasn't Bush that signed it, and NAFTA is considered the reason for all the job loss right? How's Obama's plan to get rid of NAFTA coming along? Oh, that's right, he lied about that one, NAFTA is as strong as ever under Obama.

[Libertarian1776]

Rather than stopping our Senate from spending like drunken sailors!
They raise tax on the "rich"
Don't you think they will pass their losses, by raising prices?
The poor man will pay....

[An-Historian]

If Mrs. Johnson makes a half-million dollars a year and doesn't think she deserves to be counted among the "rich", then she really needs to do a quick reality check.

Millions of Americans earn only minimum wage, with no benefits at all, such as medical insurance, retirement plans, or even un-paid vacation time - nothing. And the ranks of those minimum wage earners is growing quite rapidly.

I'll bet most of Mrs. Johnson's employees view her as rich, compared to what she's paying them.

[promaclaura]

Speaking of the same tired song, how many jobs did the Bush tax cuts for the rich create?

Hello?

Nothing?

Crickets.................


lol!
Posted by BeckieBest at 7:10 PM : Apr 27, 2009

Gee, still no answer on the wage of your highest paid employee, come on, we want to hear about how your revving up the middle class, providing those "high" paying jobs for the middle class.

ps Since Clinton passed NAFTA, Bush HAD to give tax cuts to retain the remaining jobs that ol Clinton "greased" up and let slip away. I never said that Bushes tax cuts "created jobs", as a matter of fact if Bush hadn't offered tax breaks we'd be worse off and with a lot less jobs. Just watch what happens numbnuts, taxes will be raised and even the "retained" jobs will go bye-bye. Oh but we'll have your ice cream stand jobs or maybe it's a car wash you run.

[sabre1111]

It's as if Bush never was President.

Well he did spend most of his term on vacation.

lol!
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Posted by BeckieBest


Yep, all the last eight years of problems were because of 100 days of Obama. LOL.

I'm willing to accept that Dems had their own hand in the problems we have now. But I'll be d@mned to let Repubs think they are going to get off the hook and blame it all on Obama.

[BeckieBest]

Oh please, Bush Jr. got caught in the "perfect storm" that started under Clinton's NAFTA go ahead.
----------------------
Posted by promaclaura


And there you were, complaning about all the people still harping about Bush. But its OK to still blame Clinton, right? LOL.
Posted by sabre1111 at 7:13 PM : Apr 27, 2009



It's as if Bush never was President.

Well he did spend most of his term on vacation.

lol!

[sabre1111]

If that is the case lets just say no one can make over 150k per a year. What would happen to our economy.
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Posted by dwilson59


150,000 is not 500,000 or even 250,000. While 150 will go far in Buffalo, where I live, its not even a dent in NY, LA, Atlanta or Miami.