Would taxing the wealthy make things more expensive?

[FreshStart87]

Im curious, would a change in presidency and higher taxes just incite the wealthy to raise cost on their products or services? To follow forum guidelines id prefer this thread to not be political and straight to the question.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kevin88660]

Im curious, would a change in presidency and higher taxes just incite the wealthy to raise cost on their products or services? To follow forum guidelines id prefer this thread to not be political and straight to the question.

I didn’t read that Joe Biden has any plan to impose a national wide VAT. So i dont think there will be a direct impact on cost from the tax.

The impact of increasing income tax on 400k above income earner is that they might stop expanding a profitable business and that might hurt employment and business investment decision.

The large global corporation always have tax shelters in Ireland and Cayman Island so I don’t think it is going impact their cost anyway.

 

[hellolin]

I didn’t read that Joe Biden has any plan to impose a national wide VAT. So i dont think there will be a direct impact on cost from the tax.

The impact of increasing income tax on 400k above income earner is that they might stop expanding a profitable business and that might hurt employment and business investment decision.

The large global corporation always have tax shelters in Ireland and Cayman Island so I don’t think it is going impact their cost anyway.

The plan is always in effect, making small business owners and successful solo professionals pay for large scale government programs, with the large corporations chipping in a disproportionate few % of their earnings. This is the true end goal, as in practice, not in theory.

 

[alexkuzmov]

Im curious, would a change in presidency and higher taxes just incite the wealthy to raise cost on their products or services? To follow forum guidelines id prefer this thread to not be political and straight to the question.

Depends.
Higher taxes on what exactly?

If the higher taxes dont affect the cost of the product or service, then its price wont change.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MTF]

Taxing the wealthy drives them away. Since they're usually some of the most productive individuals, overall productivity drops which means higher prices.

Thankfully usually they find loopholes to protect themselves.

 

[WestCoast]

@MTF - agree here.

The funny thing is, politicians tend to look at 'wealthy people' as this static class of people.
Unchanging, Donald Duck types hoarding the world’s resources...

They ignore that those people CREATE wealth.

To get elected, they create an enemy.
Over there... "the wealthy" - they have lots, so let's take it.

But people get un-wealthy too.
People lose everything.
They go up and down.

Penalizing those who create, innovate and improve the world, has always seemed exactly backwards to me.

Hell, penalizing those who take the risks, try things, and push boundaries?

That just seems such a strange concept - unless you're a politician pandering to one side of the aisle for votes...


Wealth is not a static class of people, wealth can not simply measured in dollars in a bank account.

It is a mindset.

One that should be encouraged, not vilified.

 

[Kevin88660]

The plan is always in effect, making small business owners and successful solo professionals pay for large scale government programs, with the large corporations chipping in a disproportionate few % of their earnings. This is the true end goal, as in practice, not in theory.

Taxes are paid more by millionaires, less by billionaires. A strange world.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ShepardHumphries]

Im curious, would a change in presidency and higher taxes just incite the wealthy to raise cost on their products or services? To follow forum guidelines id prefer this thread to not be political and straight to the question.

Yes. Keep in mind what the word tax really means, "taking away someone else's stuff without their permission." Two examples.

Capital gains theft. Imagine a businessperson who plans to sell their home to help fund their retirement, and they plan to walk away with $500k from the house sale. A capital gains theft of 20% means that they really walk away with $400k. This person must now decide how to make up the $100k. They can retire to a mobile home in a trailer park instead of a modest modular home on 5 acres, or they can raise their prices.

Income theft. Imagine a business owner who likes to net $100k each year after theft. The traditional theft rate is 20% for his theft bracket. Suddenly his new theft rate is 35%. This means that pre-theft net income can no longer be $125k, it must now be $153,850. He can work 110 hours each week instead of 85 hours, or raise prices.

 

[Isaac Oh]

Sounds good, in theory...and without any data, that result would have been my guess as well...

But, the reality is that the actual data doesn't bare that out...

In reality, the data indicates that there isn't any direct statistical correlation between corporate tax rates/capital gains rates, economic growth or inflation. This finding has been consistent across lots of bipartisan analyses.

The most common consensus is that, when taxes are higher, business owners will grow their businesses to maintain their income. The efforts to scale business growth results in higher GDP.

I'll let you do your own research, but here's one good place to start:

Corporate tax rates and economic growth since 1947

Cutting corporate taxes won't spur economic growth, and there is no evidence that high corporate taxes have a negative impact on the economy. In fact, there is no correlation at all between corporate tax rates and economic growth.

www.epi.org

Likewise, in terms of CPI inflation, there is no long-term correlation between tax rates and inflation. You can do your own analysis pretty easily using readily available data:

Inflation and CPI Consumer Price Index 1950-1959

Inflation during the 1950's was moderate but varied widely with a high of 8% and a low of -0.74%. Overall the economy was healthy with many new inventions coming on the scene.

inflationdata.com

So you're saying these people, who create value, rise to the challenge?
That's pretty awesome

 

[Guest-5ty5s4]

We’ve had high marginal taxes before, and they were ended because they didn’t bring in any more revenue. Same with luxury taxes. Listen to John Stossel for someone who actually uses facts and data to measure the performance of different policies.

Taxes are only useful when the government uses them properly. They hardly do. Look at the federal budget. How much of the budget goes to the things you support?

The main way government can improve the economy is by spending on things like infrastructure, and certain types of research (not studying how many years until the blue footed booby goes extinct).

Printing and distributing stimulus is a temporary fix that gives political popularity points but actually just makes the long term problem worse. It’s a temporary fix.

Few politicians care about what’s effective. They care about being re-elected. And there is very little chance of a politician admitting that a program they voted for has been a financial failure.

Getting people riled up and angry at one another is good for winning elections. But using taxes to “punish” faceless and nameless people just isn’t good policy historically. That’s why we got rid of the 50%+ marginal rates and that’s why rich people who still work (not those who just sit on their riches) are starting to leave California faster (where the highest effective rate is soon to be about 62%).

A high income tax won’t affect people like Nancy Pelosi who already have over $140,000,000 just generating low taxed investment returns and interest.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kid]

The most common consensus is that, when taxes are higher, business owners will grow their businesses to maintain their income. The efforts to scale business growth results in higher GDP.

Nice, i think its an law that Cialdini wrote about (and there were scientific reports about it).
It basically says that people are motivated much more by not losing something they have
than by want to gain something more than they have.

So you're saying these people, who create value, rise to the challenge?
That's pretty awesome

So... not much.

 

[Lyinx]

someone made this argument:
if the tax rate went up to 75%, then we would pay employees more. His/her thinking was like this:
if I have $100 profit, I will need to pay $75 in taxes ($25 left over)
if I hire another employee, and pay him $75, then I only have $25 profit left (18.75 taxes, $6.25 left)

while that could be correct, I would figure the company would then rather automate things, and thereby create jobs for a bit, till everything is automated.

that still leaves one problem, if my family needs $40,000 to live on, that means I would then need to make $160,000 (75% goes to taxes)

 

[Kevin88660]

someone made this argument:
if the tax rate went up to 75%, then we would pay employees more. His/her thinking was like this:
if I have $100 profit, I will need to pay $75 in taxes ($25 left over)
if I hire another employee, and pay him $75, then I only have $25 profit left (18.75 taxes, $6.25 left)

while that could be correct, I would figure the company would then rather automate things, and thereby create jobs for a bit, till everything is automated.

that still leaves one problem, if my family needs $40,000 to live on, that means I would then need to make $160,000 (75% goes to taxes)

For that reason..some traditional business have a discount for cash payment..

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Deleted50669]

@MTF - agree here.

The funny thing is, politicians tend to look at 'wealthy people' as this static class of people.
Unchanging, Donald Duck types hoarding the world’s resources...

They ignore that those people CREATE wealth.

To get elected, they create an enemy.
Over there... "the wealthy" - they have lots, so let's take it.

But people get un-wealthy too.
People lose everything.
They go up and down.

Penalizing those who create, innovate and improve the world, has always seemed exactly backwards to me.

Hell, penalizing those who take the risks, try things, and push boundaries?

That just seems such a strange concept - unless you're a politician pandering to one side of the aisle for votes...


Wealth is not a static class of people, wealth can not simply measured in dollars in a bank account.

It is a mindset.

One that should be encouraged, not vilified.

They penalize those who create, innovate, and improve the world because those are the people who oppose their model of control and oppression.

 

[Lyinx]

For that reason..some traditional business have a discount for cash payment..

and some businesses don't, just because that would make it worse for those who followed the rules (their taxes would go up)

 

[c4n]

someone made this argument:
if the tax rate went up to 75%, then we would pay employees more. His/her thinking was like this:
if I have $100 profit, I will need to pay $75 in taxes ($25 left over)
if I hire another employee, and pay him $75, then I only have $25 profit left (18.75 taxes, $6.25 left)

What kind of argument is this? Why would anybody hire an extra employee to reduce his profit by 75% ($6.25 vs $25)?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Lyinx]

What kind of argument is this? Why would anybody hire an extra employee to reduce his profit by 75% ($6.25 vs $25)?

my thoughts exactly

 

[Kak]

This thread...

 

[whyphilip]

I don't think taxing businesses makes them rise to the challenge, it was said they expand. Meaning they invest more in their growth and show less profit, hence less taxes. Only profit is taxed.

Another way to put it is you can increase revenue while lowering your profit.

Note for years Amazon showed almost no profit. Was it a poor company? Was it on the verge of bankruptcy? No, we can see that Bezos is a genius who was laser-focused on growth at the expense of profits. He knew once he captured enough market share he'd be near unstoppable. Now Amazon, not Google, is the first place most people search for products. And there are more Prime households than voting households.

Small companies and consultants can do similar. Sometimes it could just be putting more money in your IRA or 401K. You can also increase your expenses without increasing revenue. Difference is, it's on a much smaller scale and easy to overshoot.

But I'm worried less about taxes and more about legislation that effectively outlaws consulting/contracting.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Guest-5ty5s4]

I don't think taxing businesses makes them rise to the challenge, it was said they expand. Meaning they invest more in their growth and show less profit, hence less taxes. Only profit is taxed.

Another way to put it is you can increase revenue while lowering your profit.

Note for years Amazon showed almost no profit. Was it a poor company? Was it on the verge of bankruptcy? No, we can see that Bezos is a genius who was laser-focused on growth at the expense of profits. He knew once he captured enough market share he'd be near unstoppable. Now Amazon, not Google, is the first place most people search for products. And there are more Prime households than voting households.

Small companies and consultants can do similar. Sometimes it could just be putting more money in your IRA or 401K. You can also increase your expenses without increasing revenue. Difference is, it's on a much smaller scale and easy to overshoot.

But I'm worried less about taxes and more about legislation that effectively outlaws consulting/contracting.

Yes, you can reduce your taxes by spending money on tax-deductible expansion. That requires a lot of foresight, knowledge, probably a good CPA firm (ours charges $10,000 at least) and things to invest in that will actually help your business. Overall, this works great for larger companies & small companies with a lucrative niche, but destroys and significantly harms smaller startups & SMB's.

The real question is what do they do with all this extra money? According to politicians, if they just had one more percent they could save the world, the planet, end hunger, blah blah blah blah blah.

Just one more tax.
Just one more dollar.
Just one more congressional pay raise

...

 

[Kevin88660]

I don't think taxing businesses makes them rise to the challenge, it was said they expand. Meaning they invest more in their growth and show less profit, hence less taxes. Only profit is taxed.

Another way to put it is you can increase revenue while lowering your profit.

Note for years Amazon showed almost no profit. Was it a poor company? Was it on the verge of bankruptcy? No, we can see that Bezos is a genius who was laser-focused on growth at the expense of profits. He knew once he captured enough market share he'd be near unstoppable. Now Amazon, not Google, is the first place most people search for products. And there are more Prime households than voting households.

Small companies and consultants can do similar. Sometimes it could just be putting more money in your IRA or 401K. You can also increase your expenses without increasing revenue. Difference is, it's on a much smaller scale and easy to overshoot.

But I'm worried less about taxes and more about legislation that effectively outlaws consulting/contracting.

I don’t think you can write business investment as operating expense. In reality for small business that share common purchase items (e.g. cars) between business and household, there are a lot of area that they can legitimately write off part of their profit. Paying their employee who are their wife or children is another area that can optimize their tax saving legitimately.

 

[Lyinx]

I don’t think you can write business investment as operating expense. In reality for small business that share common purchase items (e.g. cars) between business and household, there are a lot of area that they can legitimately write off part of their profit. Paying their employee who are their wife or children is another area that can optimize their tax saving legitimately.

paying children/wife/etc... for work done would lower your "profit" which would lower taxes on the business side, but increase them on the personal side (income taxes instead of corporate taxes) only if you are setup that way
a scenario that a lot of small businesses would fall under:
A: setup as an LLC
B: set up as an LLC in a state with pass through taxes (Like PA)
if you have a setup in that way, it won't make any difference either way, you'll pay the same amount of taxes regardless of how much you pay or don't pay yourself (based on profit)

If you're a large/midsizes/lucrative company, you can definitely make "investments" like better equipment, faster machines, another work truck, etc.. as "operating expenses" that will pay themselves off in a few years, but for now will only be a tax write-off.

Inventory (in my state) is considered as an asset, and therefore charged as profit, so if you add 100k inventory, then you need to pay __% in taxes on that 100k

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Guest-5ty5s4]

paying children/wife/etc... for work done would lower your "profit" which would lower taxes on the business side, but increase them on the personal side (income taxes instead of corporate taxes) only if you are setup that way
a scenario that a lot of small businesses would fall under:
A: setup as an LLC
B: set up as an LLC in a state with pass through taxes (Like PA)
if you have a setup in that way, it won't make any difference either way, you'll pay the same amount of taxes regardless of how much you pay or don't pay yourself (based on profit)

If you're a large/midsizes/lucrative company, you can definitely make "investments" like better equipment, faster machines, another work truck, etc.. as "operating expenses" that will pay themselves off in a few years, but for now will only be a tax write-off.

Inventory (in my state) is considered as an asset, and therefore charged as profit, so if you add 100k inventory, then you need to pay __% in taxes on that 100k

Wow, never heard of that regarding inventory. Paying taxes on inventory that has not been sold is a very sh*tty policy!

 

[Guest-5ty5s4]

This is state by state. In some states, inventory is treated as personal property, and you'll pay personal property tax on all personal property (including inventory) at the end of the year. In those states, you need to prepare for how much inventory to keep around at the end of the fiscal year.

Ah, actually now that you mention it, we do this in Texas. But our biz doesn’t have “inventory” per se. While I love Texas (no income tax, guns, the great outdoors), the high property tax plus policies like this really do suck.

We actually have developed tons of proprietary software over the years though that makes doing this (tracking all your assets) a breeze compared to most places that still do it all on paper.

Recently we’ve been trying to get businesses to try out the software themselves. Maybe forum members here could use a program like ours...

 

[CareCPA]

paying children/wife/etc... for work done would lower your "profit" which would lower taxes on the business side, but increase them on the personal side (income taxes instead of corporate taxes) only if you are setup that way
a scenario that a lot of small businesses would fall under:
A: setup as an LLC
B: set up as an LLC in a state with pass through taxes (Like PA)
if you have a setup in that way, it won't make any difference either way, you'll pay the same amount of taxes regardless of how much you pay or don't pay yourself (based on profit)

If you're a large/midsizes/lucrative company, you can definitely make "investments" like better equipment, faster machines, another work truck, etc.. as "operating expenses" that will pay themselves off in a few years, but for now will only be a tax write-off.

Inventory (in my state) is considered as an asset, and therefore charged as profit, so if you add 100k inventory, then you need to pay __% in taxes on that 100k

Better approach:
A. Setup as an LLC (actually, you could skip this step and just be a sole proprietorship)
B. Pay child $12.4k per year (wages must reflect actual work done)
C. Since this is your child of your fully owned LLC, no Medicare/SS taxes need to be paid on their wages.
D. Since this is less than or equal to the standard deduction, the child either (1) does not need to file a tax return, or (2) only needs to file a tax return to get a refund of any income tax you may have inadvertently withheld.

Now you've just moved $12.4k of income from your higher tax rate to a 0% tax rate by hiring your kid.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[BizyDad]

Better approach:
A. Setup as an LLC (actually, you could skip this step and just be a sole proprietorship)
B. Pay child $12.4k per year (wages must reflect actual work done)
C. Since this is your child of your fully owned LLC, no Medicare/SS taxes need to be paid on their wages.
D. Since this is less than or equal to the standard deduction, the child either (1) does not need to file a tax return, or (2) only needs to file a tax return to get a refund of any income tax you may have inadvertently withheld.

Now you've just moved $12.4k of income from your higher tax rate to a 0% tax rate by hiring your kid.

Now send the man his $10,000.

 

[Guest6814]

Just my thought: raising taxes on the wealthy will tangentially raise prices. An increased tax burden on the wealthy leaves them with less money to spend providing goods and services; production becomes less efficient, thereby reducing supply. When supply decreases for an in-demand product or service, then prices naturally rise.

The government made this mistake when trying to make healthcare more affordable by increasing its demand rather than its supply: the prices rose, instead of falling.

 

[WJK]

Wow, never heard of that regarding inventory. Paying taxes on inventory that has not been sold is a very sh*tty policy!

That's true. Many businesses must pay inventory taxes. I have worked in businesses that let their inventory wane in order to reduce that tax bit. Here, where I live, it's personal property taxes that can change people's behavior. I know about it because I'm a member of a public board that does hearings on those taxes when they are contested.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[WJK]

Im curious, would a change in presidency and higher taxes just incite the wealthy to raise cost on their products or services? To follow forum guidelines id prefer this thread to not be political and straight to the question.

The higher taxes are just the tip of the iceberg. The real problem is when higher taxes are coupled with a string of regulations. The cost of meeting those regulations dramatically add to one's business expenses. They are a form of a hidden tax. They are also a gravy train for the targeted group of experts and services that the regulations trigger. Think about it. Many of the regulations require the business to hire from a small pool of experts and/or businesses in order to comply. The regulating agency becomes a revolving door with those pools of people who must be hired. Those who write the regulation are writing their own future employment prospects. They know how that regulation is going to be applied and where all the loopholes are in the compliance scheme. To add to their power, they have their pals in the regulating agency to grease the way for their clients. And the beat goes on, and the beat goes on...

 

[Lyinx]

We actually have developed tons of proprietary software over the years though that makes doing this (tracking all your assets) a breeze compared to most places that still do it all on paper.

Recently we’ve been trying to get businesses to try out the software themselves. Maybe forum members here could use a program like ours...

we have software that tracks our inventory... and we're going to the Canban system because the boss won't use the software (it's built right into accounting, so it would be simple, but it can get screwed up if someone doesn't do their job right)

Better approach:
A. Setup as an LLC (actually, you could skip this step and just be a sole proprietorship)
B. Pay child $12.4k per year (wages must reflect actual work done)
C. Since this is your child of your fully owned LLC, no Medicare/SS taxes need to be paid on their wages.
D. Since this is less than or equal to the standard deduction, the child either (1) does not need to file a tax return, or (2) only needs to file a tax return to get a refund of any income tax you may have inadvertently withheld.

Now you've just moved $12.4k of income from your higher tax rate to a 0% tax rate by hiring your kid.

how would you do it if your business (LLC) has multiple partners?
oh, and the entire company is Medicare/SS tax exempt, so don't have to worry about that