Monday, September 20, 2010

It's Not Just Semantics

     It seems there are two competing definitons for the term “small business”; to no one's surprise the Democrats are using one and the Republicans are using the other. For the convenience of anyone who doesn't know which party he prefers, here are the definitions:
1.) A small business is a business which is not very large, e.g., a corner grocery, a machine shop with a couple of employees, a mom and pop enterprise, etc. Most Democrats use the term in this context.
2.) A small business is a business which operates as a pass-through tax entity, e.g., most of the businesses in def. 1.) plus most mega-farms, some manufacturing firms, and practically all high-tech and professional firms. These organizations use the individual proprietorship, partnership, S-corporation, limited-liability company (LLC), etc. tax reporting format. Under this definition the business could have anywhere from one to thousands of employees. For example, with over 163,000 employees worldwide, the eighth largest privately owned firm in the United States, PriceWaterhouseCoopers LLP, is a “small” business.
     The advantage of operating as a def. 2.) enterprise is that profits are not taxed to the business, but are “passed-through” to be reported on the owners' individual tax returns. Because corporations pay tax on their earnings, and owners pay tax again on the dividends they receive from the corporations, the overall taxes are considerably less for a pass-through entity than they are for a corporation.
     At present our representatives in Washington are trying to decide whether or not to let the tax breaks passed under king George return to their prior levels. President Obama prefers to let them go back up for families earning over $250,000 per year ($200,000 for individuals), and remain at the lower levels for taxpayers earning less than that. The Republicans want to extend the breaks for everyone.
     Here is where the above definitions come into play. The Republicans cite studies which show that under the President's plan roughly half of “small business” earnings would be affected, which is true.
     On the other hand, the Democrats maintain that only about 3% of households which report “small business” income would be affected by the increased tax rates, which is also true.
     Let me give you an example:

     Suppose 100 families report a total of $10,000 of small business income. The Republicans, using def. 2.) above, correctly claim that $5,000 (50%) would be affected by the President's plan. Using def. 1.) the Democrats say yes, but that would be only 3 families (3%). The families paying the increased rates would have average incomes of $1,667 – the average income of the other 97 families would be about $52!

     Presently the Republicans are threatening to block any bill which does not extend the lower rates for all taxpayers - if the higher-income taxpayers do not get the break, no one does. I expect they will get their way – after all, mega-campaign contributions are on the line.
     I am more than a little troubled by the idea of the lower-income families having to pay ransom to those with higher incomes, but it looks like that is what is happening. It seems to me that the greater the advantages one's country has given one, the more one should be willing to give back.
     Einstein fine-tuned the old constructs with his theories of relativity. Since then, the universe is understood to consist of an infinite number of point/events. Between point/event A and point/event B are an infinite number of possibilities. Light is both a particle and a wave, electron orbits are not real — only probability functions — and if we know the position of a particle we can’t know its velocity and vice versa. In some situations, the law of identity and the law of the excluded middle do not apply.
     Constructs – The Spirit Runs Through It.

     The book or a free download is available in paperback or on Kindle.

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