Biting The Hand That Feeds

As everyone in our great nation has been witness of, things do not seem to be getting any better for families or for businesses.  These have been extroadinarily tough times for everyone.

One thing that stands out – is the fact that government regulations and taxes are overwhelming for businesses.  In the past few months, there have been CEOs of large companies – such as Westin Resorts – that sent messages to all of their employees indicating the tough nature that their businesses face.  Why?  Because the government wants to continue to increase taxes on businesses so they can somehow continue to spend all of the taxes – and still run a $1+ trillion deficit each year.

Illinois is no exception to this as well.  Illinois raised their state income tax from 3% for individuals and families to 5%.  To me, it is amazing how some states – such as Florida – do not even have a state income tax.  While anyone can bicker back and forth about the democrat or republican stance on things, it absolutely does seem that democratic states and democratic governments tend to put more tax burdens on their citizens, run extroadinary deficits, and have budget problems.

Illinois is a democratic state – and so is California.  Both have extremely high debt loads.  Therefore, Illinois increased the tax rate on individuals along with businesses – almost doubling the amount of taxes – and they still are spending more money than they bring in!

Some candidates and politicians have it right.  Some do not.  Unfortunately, the American population see millionaires and those that live in excess as the enemy.  Why?  Because they are better off than 99% of the rest of the population.  However, us Americans need to also understand that these millionaires and their families took extreme risk to get to the point where they are in their lives.  While I personally do not agree with CEOs that have big parachute packages that give them millions more when they leave the company or are forced out – the true risk takers that start up businesses deserve the benefits and profits involved with their business.  In many cases, we – as Americans – simply see that they are very well off – and therefore think that they should be taxed more to pay their “fair shre”.

I personally do not agree with this.  Their tax rates are already high enough – and because they have such large incomes, they end up paying the majority of the taxes that the government receives.  1% of $1,000 is $10.  1% of $10 million is $100,000.  Basic math.  I’ve been on both sides – a business owner and full-time employee.  That is what I am right now.  BsnTech is a family-run business and we cannot afford to hire employees – so we work with contractors and freelancers.  BsnTech is not a very large business anyways – so this is the route that we have to take until we can build our client base.

Those that run businesses can lose everything.  They can also gain everything.  But the American population needs to understand that biting the hand that feeds you is not the way to grow the economy and bring in more jobs.

I’m a firm believer that the people that run this country should be businessmen – not politicians.  Business owners know how to balance budgets.  Business owners know that they must live within their income or face going out of business.  That can’t be said for politicians and lawyers that have ideals and just expect that the money will come from somewhere.

When the CEO of Westin Resorts sent out a message to all of his employees, he wasn’t telling them who to vote for – but certainly strongly encouraged them to make a sound decision.  Why?  Because the current administration proposes to raise taxes on corporations and businesses.  For Westin Resorts, he made a very telling claim in his message to his employees.  If these additional taxes pass, then the company may shut down.  The company may lay off all of their employees.  What is the point of running a business – and dealing with all of the stress, regulation, taxes, employee benefits, and everything else – if you aren’t enjoying any benefits?  There is no reason.  As the owner of Westin Resorts said, he will simply close down the company and move to an island where he can retire peacefully on the beach.  The sad reality is – taxes kill jobs.  They do not create jobs.  If these additional taxes pass, this is a perfect example of how another 10,000+ jobs will be lost.  It doesn’t stop there – as I’m sure thousands of other companies would do the same thing.

Illinois did not help matters when they increased the individual tax rate – and the corporate tax rate.  That cuts more into businesses and their ability to hire.  Now, businesses in Illinois have a larger tax burden – and therefore businesses let go of employees.  Think about it this way.  The state could say “we’re going to tax you 90% of your earnings”.  So a business will then turn around and shut down.  What is 90% of a shut down business – and employees that otherwise would have received a paycheck to pay taxes?  ZERO.  But yet the costs to the government go up – to pay for all of those unemployed citizen’s welfare benefits.  There is a proper balance between taxes and income.  Once that balance becomes overweight, you can continue to increase the tax rate as much as you want – but it will begin bringing in less and less tax revenue as more businesses bulk at the costs of running a business.

This – in essence – is where Greece is right now.  Greece has 25% unemployment.  So that means the government now has to support 25% of it’s population through unemployment and welfare benefits.  Businesses have shut down – so they are not making tax revenue from them.  Greece continues to have problems bringing in more tax revenue – which is constantly declining because of failed businesses and higher unemployment.  That means the government then has to support even more with unemployment and welfare benefits – costing the government more.  The cycle continues.  The fact is – governments must work on a budget and live within their means – much like the rest of civilization.  Deficits, debt, and higher taxes just speed up the process of destruction.

As a business owner, our tax rate is approximately 40%.  Yes, 40%.  Combine the 5% Illinois income tax with self-employment taxes and federal income taxes.  And the business generates less than $40,000 a year at this point.  That is twice as much as the tax rate for individuals and families.  All because I decided to own a business.  Our rates are already incredibly low for website design and website services – but it is horrendous that 40% of the income then goes to the government.  Some people might think “Wow, I could easily live off of $40,000 per year!”.  Not at all.  Businesses have expenses – and taxes.  For the year of 2012, there has been about $35,000 in revenue.  Approximately $15,000 in expenses.  That leaves $20,000 left.  Now, take 40% from that.  That is $8,000 that goes to the government.  Did the government help start this business?  Absolutely not.  Do they provide any kind of business to us?  Absolutely not.  Does the government have any assistance with this business?  No.  But, they get to come in and say “We get 40% of everything you make after expenses”.  So, that $35,000 in revenue drops sharply down to only $12,000 in retained income that the business can keep.  Can you live off of $12,000 a year?

Most Americans do not realize this – nor do they care.  They only care about getting a paycheck each pay period to keep their families going.  Well, what happens when those paychecks stop?  Everyone immediately starts to blame the rich and those that took exceptional risks to start a business.  The blame is not on them – the blame is on the government and the extroadinary spending that goes on with lack of conscious about what it is doing to the country.  There are still extreme struggles for families out there in America – and there is no doubt about it.  But, instead of blaming the rich, they should be blaming the government for the regulations and taxes that are pushed upon businesses.

If corporations and businesses were able to retain more of their earnings – instead of sending it to Uncle Sam or to their state, jobs would be created.  I personally know that we may hire a person to help with some day-to-day activities if we didn’t have to pay 40% of the business income in taxes.  Sure, some may say “well, if you hire employees, it adds to the expense of running your business and reduces your tax burden”.  That is true.  However, there still would be taxes.  As an example – let’s say that we paid an employee $8,000 a year – including the business-paid portion of medicare and social security.  That makes the expenses go from $15,000 to $23,000.  Subtract that from the $35,000 in revenue – and that is $12,000 in retained earnings.  Now remove the 40% tax from that – and instead of getting to retain all $12,000 of it, taxes are $4,800 so the retained earnings drops further down to $7,200.  That means the employee would then be making more than the business owner!

What it comes down to is a very simplistic approach.  Do corporations and businesses employ more people – or do they pay more in taxes?  You can’t have it both ways.  Realize that if you are employed by a business or corporation, you may not agree with all of their policies or procedures.  You may see many executives at the top making huge compensation packages.  Those executives are what runs the business – and ensures good business prospects to provide stable employment.  So, I encourage everyone to really think about how this cycle works and to not bite the hand that feeds you.

One thought on “Biting The Hand That Feeds

  1. I very much enjoyed reading this article! I can certainly tell a lot fo thought went into this, and can see the realities mentioned here first hand being a large part of this business myself, and being concerned with how I am going to manage the tax issues myself when faced with them.

Leave a Comment

*