Fact: Obama’s tax plan would give me a tax break (probably around $1000). That’d be nice. Of course, having closely observed presidential campaigns for dozens of years now, I know that what a president wants and what he can get out Congress can be two very different things. Apparently, he’ll help pay for this by eliminating a bunch of deductions, but since I don’t take any, that’s shouldn’t change my amount.

Fact: Obama wants to give a tax cut to 95% of Americans, regardless of whether or not they pay taxes. CBS News has a good article on how he’ll do this through tax credits, whether or not your tax liability is above zero.

Fact: Obama will raise taxes on those making more than $250,000. He says he won’t raise their taxes, but instead he’ll revoke the tax cut bringing their rate down to about 33% so that it will go back up to 39.6% where it used to be. He’ll also raise the cap on Social Security payroll taxes, so their overall taxes will go up even more.

Why am I interested in people making over $250,000 a year?

Because I work for two very small companies which, combined on a good year, make over $250,000 a year. They’re both S Corporations (a designation by the IRS), and they report their earnings as personal income for each of their owners. Now, at the end of the year, it’s not a good idea to zero out your company’s earnings so that you don’t have anything left in the account. The recruiting business especially gets very large checks but only a few times a year. You really have to keep a good couple tens of thousands in the bank if you’re going to be able to continue paying all your expenses, like your subscription to Yahoo HotJobs to find people or to be able to pay your assistant researcher (me!). You never know when your next check is going to come in, and you’ve got to keep going in the meantime. So all that cash in the bank ready to be used gets counted as personal income, despite the fact that you’re not going to see it in your pocket at all (unless you’re on the way to Staples to buy some office supplies). The other company, the law firm, has a more steady supply of income, but still, sometimes you get a nice big payment for a client you’ve been working for for three years, and that cash is going to have to keep you going through the next year. Still, that gets counted as personal income. If there’s a way to deduct this cash before it actually gets spent, I’m all ears! Along with being an assistant for both companies, I’m also the accountant. If you think about it, $125,000 isn’t a whole lot for a company to make, but double it, and my employers suddenly hit that $250,000 threshold.

Now, I’m paid a set salary and get the occasional raise. I also get 4% of what the recruiting company brings in. Nice! If we place an engineer with a six-figure salary, I get about $1200 (more than I get from Obama). But say my employer is getting close to hitting that $250,000 ceiling. She could continue working hard to get another check for the year. Or she could take some time off. If you’re paying nearly 40% of your income to the federal government, another 10% to the state, and another 7% in sales tax, it’s hard to be motivated to work harder when you’re paying more than half of what you make in taxes. Or maybe she would just stop working at all. Even the peasants in Medieval Europe only had to give a third of their crops to the nobles.

So I’m out that extra $1000 I might make. Or $2000. Or a job.

Sole Proprietorships, another IRS designation for small companies, would see their tax rate rise to 50.3%. I suppose the smart ones would redesignate as S Corps.

I’d also like to point out that my employers are not filthy rich. They live comfortably now, but I knew them when they were a one-income household and struggling. They could not pay for their kids college tuition, so all three of the boys either got scholarships or got the military to foot the bill. My employers have only recently been able to sock away money for retirement. The attorney is 65 and has no hope of retiring in two years. He’ll have to keep working for quite some time. They give lots of money to charity and use their personal ranch as a horseback riding ministry to kids with special needs. But all those lean years earlier don’t change the fact that they’re “rich” now and have to pay more taxes.

All of this is to say that, from my personal viewpoint, Obama’s tax plan will not benefit me. I don’t think it will benefit the economy for the same reasons.

Sources:

“The Election Choice: Taxes” Wall Street Journal Opinion
“How the Obama and McCain Tax Plans Will Affect America’s Small Businesses” Heritage Foundation
“The Obama Tax Plan” Wall Street Journal Online Opinion
“An argument against Obama’s tax plan” Politico