According to Minx and GGT, this commonsense reform is tantamount to giving free guns to criminals.
According to Minx and GGT, this commonsense reform is tantamount to giving free guns to criminals.
Originally Posted by Veldan Rath
Tax reform isn't just common sense, it's clearly been needed for decades. Neither Minx nor I have said otherwise.
The incentive shouldn't just be to repatriate corporate capital, where it can remain concentrated in financial 'instruments' that benefit only CEO's, executives, financial advisors, money managers or shareholders....but to deploy it as investments in the "real economy".
ie, human capital and jobs. Jobs that pay a living wage and go directly to workers, who then go out and spend that money, increasing consumer demand, and even *gasp* tax revenues. Employed people invest in their own communities, from housing to coffee shops, schools and roads, police and hospitals. No reason business can't do the same.
If multinational corporations expect big tax breaks to do business, they should be incentivized to share more of their billions in profits with workers/labor and communities that made it possible, and helped them build that. We don't even need new tax incentives for that. Just some good old fashioned business ethics. With business leaders that connect human capital gains to their financial capital gains, not just overseas or globally, but locally.
It's not a tax break for the US to try and tax money not earned in the US. The US is the only country that tries to do this, which is why so much more cash could be in the US. How do you expect the money to be "deployed" in ways you like if it's sitting everywhere besides the USandEh?
US tax codes don't prevent multinational corporations from earning plenty of money off-shore, creating subsidiaries in other countries, or exploiting other national tax codes to their advantage. Dutch Sandwich, Irish Clover, Swiss Vault (or whatever names these tax havens are called) are nothing but money-laundering-tax-avoidance-schemes. They move money around, extracting from local labor forces and regional infrastructure/logistics. All the while trying to avoid paying back into those systems. That helps large US corporations in tax avoidance, but the "savings" doesn't necessarily trickle down to US investors, shareholders, workers, or community tax payers.
That's just one part of Financial Engineering that's been proven to be so destructive for 'real economies'.
The US isn't preventing multinationals from earning money offshore. They are just putting the multinationals in a position where it's extremely undesirable for them to bring that money back to the US. Incentives matter.
But yes, cling to the socialist idea that companies are somehow "extracting" blood from "the people".
Well there is the Dutch route of course which is very useful to reduce your profits on paper.
Congratulations America
Yummy yum yum double Dutch sandwich.
Now that I've seen the negotiations for a bit longer, I agree with you more, Dread. While certainly there has been some movement on both sides on the issue of revenues (though more on the Republican side), there has been little to no meaningful discussion of entitlements by the White House, as far as I can tell. I find that irresponsible and counterproductive.
Yeah, I'm not sure if Obama thinks he has a really good hand or doesn't think entitlement spending is a real problem. But Boehner really managed to look silly with those vote -- not sure why he thought he would be able to pass something and have it magically sail through both houses with a veto-proof majority. This is all looking pretty bad.
Meanwhile, I'm about to formally close the door on a business I was going to invest-in with a partner. We had just finished fleshing-out a lot of revenue models, incorporation structures, business plans, etc and were starting to look into taking it to the next phase.
But, given the type of structure we were going to incorporate with, the higher dividend rates doubles the amount of time it would take to recover our investment (not to mention actually start to make money). Changes the whole equation for both of us and makes it not quite worth the effort and risk.
I'd like to know where the negotiations for DoD / military budget cuts went. All this time they've spent on tax rates, tax cuts, SS, Medicare/Medicaid....but nothing about "sequestration" military cuts they threatened themselves with.
Sounds like you didn't have faith in your "product" because it involved some financial alchemy.
Ah, so you weren't really trying to develop a product or service backed by a great idea, and move it forward. Instead, you were working backward, from profit margins to dividends and tax loopholes, making your product conform and "fit" into financial alchemy schemes.But, given the type of structure we were going to incorporate with, the higher dividend rates doubles the amount of time it would take to recover our investment (not to mention actually start to make money). Changes the whole equation for both of us and makes it not quite worth the effort and risk.
Probably a good idea to step away from that kind of "investment". You should sound happy instead of discouraged.....
This business was far more mundane than you imagine it to be. Profit margins are not "financial alchemy".
And it's sure not "working backward" to build a business around revenue/profit models. Otherwise you'll be closed within a few months because you had no profits to keep going. But when the government is going to double its takings of the profits, that has an impact of decisions. Incentives matter.
We need to start teaching kids in high school about basic economics and basic business practice/law/processes/accounting.
Correct me where I'm wrong. This was a venture outside your regular job/career. An adjunct that might have become your main income, if all things fell in place, over time. But even if it barely broke even....you weren't really interested. You were trying to act as a venture capitalist or "market maker", not as an entrepreneur or new business creator.This business was far more mundane than you imagine it to be. Profit margins are not "financial alchemy".
And it's sure not "working backward" to build a business around revenue/profit models. Otherwise you'll be closed within a few months because you had no profits to keep going. But when the government is going to double its takings of the profits, that has an impact of decisions. Incentives matter.
We need to start teaching kids in high school about basic economics and basic business practice/law/processes/accounting.
People with great ideas aren't so easily swayed from their visions by tax codes. Seriously. They take their good ideas and plod forward, against all odds, not hoping to become profiteers (let alone millionaires) as their first goal, but try to make their product (or service) available to as many people as possible....while earning some money along the way.
That means having some faith in your product, over time, or trying to fill a temporary niche of one-song wonders, Pet Rocks, or Mood Rings.
Have you ever run a business?
Brevior saltare cum deformibus viris est vita
Is that the correct question?
I'll take that as a no.
And I say that as you are asserting lofty goals to people that are in business to MAKE MONEY. For whatever reason. From to not 'work for the man', to 'do what they love', they do it with the goal of TO MAKE MONEY.
Faith in your product only takes you so far. You will have to work ungodly hours at the start, invest your personal wealth into it, with no guarantee that you will make it. If by the end of the year, you have paid ALL your bills, AND managed to pay yourself a salary that has not left either your new business or your home in utter financial disarray, and manage to make ANY profit, you are doing better than most new businesses.
Now comes some jerk saying that they want to increase taxes on you. If you are not easily swayed by tax codes, YOU ARE A MORON.
Every expense for any business needs to be weighed on how it will impact you. If I'm eeking out a 5% profit after all is said an done, and then find out tax rates for the next year are going to go up by 2%...I might get nervous.
'Is that the correct question' indeed...
Brevior saltare cum deformibus viris est vita
Your completely random misuse of the term "market maker" is...well it's incorrect. I'm not sure where you're getting "venture capitalist" out of this.Correct me where I'm wrong. This was a venture outside your regular job/career. An adjunct that might have become your main income, if all things fell in place, over time. But even if it barely broke even....you weren't really interested. You were trying to act as a venture capitalist or "market maker", not as an entrepreneur or new business creator.
People with great ideas aren't so easily swayed from their visions by tax codes. Seriously. They take their good ideas and plod forward, against all odds, not hoping to become profiteers (let alone millionaires) as their first goal, but try to make their product (or service) available to as many people as possible....while earning some money along the way.
That means having some faith in your product, over time, or trying to fill a temporary niche of one-song wonders, Pet Rocks, or Mood Rings.
I'm not talking about "inventing" something per se. I'm talking about the rough equivalent of opening a local pet store. Except it's not actually a pet store. Not everyone who starts a business is a "venture capitalist" except in the most literal way. IE this would be a business venture and I am a capitalist. But it's not about trying to change the world; it's about doing something local, interesting and profitable. There are hundreds of thousands of people taking risks by starting businesses and they depend on making money to fulfill their goals.
New tax rates throw all those calculations out of whack, and it's insanity to pretend they don't make a difference. I was willing to put a decent amount of savings into this, but between the inherent risk of the project and the lowered payback period I have no choice but to put my capital on strike.
Okay, yes, I've helped run a small business (my ex's solo architectural firm). The goal was growing it into his main business income. Made the transition from FT to PT at a large firm while building it up from the ground, getting new clients, PR exposure, securing small business loans, buying early CADD equipment, investing our own money, budgeting, the whole nine yards.
Of course people need to make money and earn profit. I was pretty much an unpaid 'employee' acting as secretary, bookkeeper, office manager, you name it. We knew plenty of solo and small firm architects that had done the same -- some with great success, some failures, others in-between.
Tax rates didn't tank the failed firms, and tax rates didn't stop people from starting new firms.
A pet store that's not a pet store --- sounds interesting.If you're 'keeping your day job', barely breaking even on a new venture can actually be considered a success for the first couple of years. New ventures rarely start out with high profits in their infancy stages.
That's why I asked. Whether it's how you've decided to incorporate, the amount of personal money/savings at risk (in lieu of securing SBA loans or getting other small 'investors'), or that you planned to use dividends for your earnings (?)....tax rates shouldn't hold such sway over your decision to do something interesting and profitable. Even if it's only slightly profitable at the beginning.New tax rates throw all those calculations out of whack, and it's insanity to pretend they don't make a difference. I was willing to put a decent amount of savings into this, but between the inherent risk of the project and the lowered payback period I have no choice but to put my capital on strike.
Thousands of others will still start new businesses, even inherently "risky" projects with small profit margins, also using their own savings....regardless of any tax changes coming down the pike. So I'm calling BS on your new tax rates whacked the project as the reason it stalled.
The proposed method of incorporation was an S-Corp, which did rely on dividends to distribute profits to shareholders. We're talking about less than a dozen shareholders here, but that's still the best method of managing this kind of operation. So doubling the dividend tax rate would halve the amount of money we can earn from the business after taxes.
When you throw our revenue projections at this (and we have various ranges of revenues, because doing this is hard), the projected upside for everyone was cut by 50%. This turns a challenging-but-potentially-fun-and-profitable business into something that would be much less profitable, which makes people a lot less willing to spend the time and money on it.
No one is saying that investment and new business creation would grind to a halt. But it will be hurt by these outbreaks of socialism that seem to be afflicting the Democratic party.
Ah, yes, those outbreaks of sssocialism called Taxes.
I'm sure you're following advice from a tax attorney or CPA....but it doesn't sound right that your "upside" would be cut by 50% if dividends are taxed slightly higher (proposed ~ 5% more than today). As I said, where there's a will there's a way; either structuring the corp. differently for tax purposes, making your investors contract employees or temp workers, or changing the dividend payments to royalties, etc. Any number of creative ways that wouldn't eat up small profit margins for a small operation its first couple of years.
Blaming tax codes for scrapping a business idea...sounds like an excuse to simply complain about taxes in general. IMO.
It's not a proposed 5% increase, it's a proposed 33% increase. Long-term capital gains and dividend taxes are 15%. Raising the tax rate to 20% is a 33% increase (5%/15% = 33%).
That's a big jump. Not as big as the insane jump that Obama wants, but it's still a big increase. And, crucially, the uncertainty around these issues is also just killing things. Over the past ~8 months we passed on the chance to rent two business spaces because we have no idea if the math works for some of us due to this tax controversy.
Look, there's no such thing as "permanent" tax rates. There's also no such thing as business (or investment) "certainty". If you're holding back for those things, you'll be stuck in a perpetual wait mode. That's why I said your planning seems backward -- because everyone conducts business at the same real time/rates, regardless of what they hope for or anticipate might happen.
Taxes were much higher in past decades, not just the Clinton era when 39% was the highest income bracket, but also for capital gains and dividends. The 70's and 80's had higher costs for all sorts of loans and credit, that acted as a Tax. Even when mortgage interest rates were 18% people still bought homes. When business loans charged 10% people still started new businesses.
Your fear of higher dividend tax rates has now been disproven, unless you're an individual making more than $400,000 or a household making more than $450,000. Wait another few years....and it might be totally different again! Can you calculate the lost opportunity costs, or locked-in lower rental space rates, against the costs of real estate or city taxes that may go higher in the future? Probably not.
If you're trying to break into the multi-billion dollar Pet industry, then it makes more sense to focus on the consumers of your product....instead of constantly changing tax rates. If your product or service has good value, taxes won't mean one whit. High income folks will continue to spend lavishly on their pets with Chanel dog purses, Tiffany gem-studded collars, gourmet foods, etc. Middle income folks will still treat their pets as family members by buying grooming, exercise, Day Care and kennel services. Even some low income folks would rather eat cat food than give up their cats....
How does raising a tax from 15% to, let's say 30% since you mention double, halve your profits? Raising it only 5 percentage points decreases it by about 6%, since you're so into how the numbers sound and pick the largest one you can find to make it sound worse.
Margins margins margins margins. You really have no sense of how businesses work if you think taxes are somehow meaningless. You also apparently pine for the old days when Wall Street primarily worked to make large investors rich, because you needed deep pockets (and tricky accounting) to make the profits stick. I prefer today's world of lower barriers to entry to capital investments. That's why more than half of Americans own stocks now, which is a good thing.Look, there's no such thing as "permanent" tax rates. There's also no such thing as business (or investment) "certainty". If you're holding back for those things, you'll be stuck in a perpetual wait mode. That's why I said your planning seems backward -- because everyone conducts business at the same real time/rates, regardless of what they hope for or anticipate might happen.
Taxes were much higher in past decades, not just the Clinton era when 39% was the highest income bracket, but also for capital gains and dividends. The 70's and 80's had higher costs for all sorts of loans and credit, that acted as a Tax. Even when mortgage interest rates were 18% people still bought homes. When business loans charged 10% people still started new businesses.
Your fear of higher dividend tax rates has now been disproven, unless you're an individual making more than $400,000 or a household making more than $450,000. Wait another few years....and it might be totally different again! Can you calculate the lost opportunity costs, or locked-in lower rental space rates, against the costs of real estate or city taxes that may go higher in the future? Probably not.
If you're trying to break into the multi-billion dollar Pet industry, then it makes more sense to focus on the consumers of your product....instead of constantly changing tax rates. If your product or service has good value, taxes won't mean one whit. High income folks will continue to spend lavishly on their pets with Chanel dog purses, Tiffany gem-studded collars, gourmet foods, etc. Middle income folks will still treat their pets as family members by buying grooming, exercise, Day Care and kennel services. Even some low income folks would rather eat cat food than give up their cats....
Also, the tax rates of yore were filled with loopholes. Government revenue has remained steadily between 15 - 18% of GDP since the end of WWII.
You're right, I was not properly articulating that our considerations on taxes went beyond just the dividend tax rate. That said, the dividend tax rate hike would substantially increase the amount of time it would take to recoup the investment. One of Obama's proposals was to make the dividend rate go from 15% to 45%. That's a delta of 30 points.
But I was also not including Obama's proposed income tax rate increases and how they would impact the underlying profitability of the venture. There would be some full-time salaried people on staff who have specialized skills. Because of the higher tax rates, we would have to pay them more to retain that talent, which would reduce profits.
In our projections of the profitability being slashed, we factored the dividend increases + the salary increases required to retain talent at a relatively newer/smaller company given the higher income tax rates (and the fact that the small amount of equity offered to full timers would be even less compelling in the world with 30 - 45% dividend tax rates).
Basically, lower profits due to higher salaries due to taxes + higher taxes for owners = profits cut in half = less compelling business.
Last edited by Dreadnaught; 01-06-2013 at 03:16 AM.
Wrong. What I've said is that starting a new business isn't usually tied to imagined or real corporate tax rates....but to the consumer. If middle-income consumers are heavily taxed, they'll have less to spend, and businesses will suffer. Business can always pass their costs (tax-related or otherwise) onto the consumer. But "trickle up" by bleeding a turnip doesn't work so well.
Dude, you're not really making a very good argument for why you stalled your non-pet pet business. You don't have to be a publicly traded company on the NYSE to pay stock "dividends" to your investors. And you certainly can't blame corporate tax rates....since you acknowledge that federal revenue has been steady for decades, even with tons of IRS loopholes.You also apparently pine for the old days when Wall Street primarily worked to make large investors rich, because you needed deep pockets (and tricky accounting) to make the profits stick. I prefer today's world of lower barriers to entry to capital investments. That's why more than half of Americans own stocks now, which is a good thing.
Also, the tax rates of yore were filled with loopholes. Government revenue has remained steadily between 15 - 18% of GDP since the end of WWII.
Right, and POTUS doesn't create, pass, or enact tax laws. Congress does that.You're right, I was not properly articulating that our considerations on taxes went beyond just the dividend tax rate. That said, the dividend tax rate hike would substantially increase the amount of time it would take to recoup the investment. One of Obama's proposals was to make the dividend rate go from 15% to 45%. That's a delta of 30 points.
I'll repeat my opinion again: Your "projections" around proposed tax rates don't mean a damn thing. First, because you're trying to anticipate the unknown future, and secondly, because no matter how the future pans out....every other business hopeful will be dealing within the same environment.But I was also not including Obama's proposed income tax rate increases and how they would impact the underlying profitability of the venture. There would be some full-time salaried people on staff who have specialized skills. Because of the higher tax rates, we would have to pay them more to retain that talent, which would reduce profits.
In our projections of the profitability being slashed, we factored the dividend increases + the salary increases required to retain talent at a relatively newer/smaller company given the higher income tax rates (and the fact that the small amount of equity offered to full timers would be even less compelling in the world with 30 - 45% dividend tax rates).
Basically, lower profits due to higher salaries due to taxes + higher taxes for owners = profits cut in half = less compelling business.
You're looking for a leg-up that doesn't exist. You're trying to reduce risk by focusing on the wrong actors. You're more concerned about taxes, investors, or retaining "talent" than you are with your product or service, or the consumer! Without enough people willing and able to buy your product or service....nothing else matters.
What does other business have anything to do with the tax rate? Its not a competition in making money (it is a competition for market share/customers). If you LOWER the potential upside of an action fewer people will do that action. Its the same philosophy behind punishing crime. If you punish the crime you increase the downside of people wanting to do it so less of it happens. If you lower the incentives for opening a business (through higher tax rates) you get fewer new businesses. This isn't rocket science - this is pure logic based on incentives.
On the macro level - less business = bad for consumers. Will Dread not going into business be a big deal for the rest of America? Probably not. But his story is multiplied thousands and thousands of times over across the country DOES make it a big deal for the country.
Sorry GGT, you have no clue what you're talking about.
I mean, claiming that "you don't have to be a publicly traded company on the NYSE to pay stock 'dividends' to your investors." Well duh, why do you think our business plan with several shareholders is impeded by dividend tax rates potentially going from 15 - 45% (and the years-long uncertainty about those rates)? Corporations are people and dividends are profits, my friend.
None of this is as silly and confused as your claim that tax rates don't impact the profitability (and thus viability) of a business. No one said the economy would grind to a halt with higher tax rates. But incentives matter, and the prospect of dramatically higher tax rates has prevented a large sum of money from being put to productive use. Instead, my partners and I kept this money sitting around doing nothing for months. IE, the tax uncertainty stalled the plan and now we're re-evaluating.
We've agreed that incentives matter. I'm suggesting that all new businesses will always have to weigh start-up costs, margins, and taxes. If anyone's main incentive is putting large sums of money to productive use, with low risk and high profits, then perhaps starting a small business isn't the best idea. Especially during a long slow economic recovery where middle-income consumers were hit the hardest.
Starting something new is inherently risky and uncertain. Those whose incentive is the venture itself aren't usually stalled by proposed business tax changes. Not just because those "dramatically higher rates" may never come to pass, or that everyone faces the same prospects (and cancels out a degree of unknowns), but because it's the consumer that matters most. You need a client/customer base with money to spend.
No offense, but keeping "large sums of money sitting around doing nothing for months" was the choice you made. You didn't want to invest in an existing chain franchise (like PetValu) but wanted to start your own pet store, giving reasons like a fun and interesting challenge that could make some money along the way. Sounds great!
Yet, your narrative sounds like sour grapes veiled in policy critique. Instead of re-evaluating your own incentives -- and taking personal responsibility -- you're using tax negotiations as a backhanded way to complain about taxes in general.
Fair enough - that doesn't mean taxes shouldn't be raised at all though. I mean, I can use your argument to favour abolishing all taxes, clearly that's not a very sensible solution. Question is whether the tax rates are not too low as it is, but I am not very knowledgeable about your tax rates, so I won't comment on that. You just gave an example of something that is on the edge of profitability.You're right, I was not properly articulating that our considerations on taxes went beyond just the dividend tax rate. That said, the dividend tax rate hike would substantially increase the amount of time it would take to recoup the investment. One of Obama's proposals was to make the dividend rate go from 15% to 45%. That's a delta of 30 points.
But I was also not including Obama's proposed income tax rate increases and how they would impact the underlying profitability of the venture. There would be some full-time salaried people on staff who have specialized skills. Because of the higher tax rates, we would have to pay them more to retain that talent, which would reduce profits.
In our projections of the profitability being slashed, we factored the dividend increases + the salary increases required to retain talent at a relatively newer/smaller company given the higher income tax rates (and the fact that the small amount of equity offered to full timers would be even less compelling in the world with 30 - 45% dividend tax rates).
Basically, lower profits due to higher salaries due to taxes + higher taxes for owners = profits cut in half = less compelling business.
One thing your example does show clearly though: it would very useful to have more certainty about future plans (not just taxes) of the government. Worse than a tax hike is uncertainty, I'd say. And your current government doesn't really seam to be a shiny example of stability in that sense.
Also, GGT, even if you care enormously about your business, your product, your consumers, at the end of the day you don't want to be going bankrupt, so of course it matters. Denying that is silly.
Keep on keepin' the beat alive!
I'm not denying anything. Just skeptical about Dread's cause-and-effect analysis.
If a business model is based on future or proposed tax rates, and cites those fears for delaying investment, or causing future bankruptcy....it's probably the business model (or the good/service) itself that's flawed, or their incentive..... not the tax scheme.
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