March 04, 2009
Obama taxes, Atlas shrugs
Glenn Reynolds provides a round up of news about Obama's apparent inability to charm the markets, but the most interesting part of the post is how people are reacting to the increased taxes that the president and the Democratic-controlled Congress are about to impose.
Dr. Sharon Poczatek, who runs her own dental practice in Boulder, Colo., said that she too is trying to figure out ways to get out of paying the taxes proposed in Obama’s plan.
“I’ve put thought into how to get under $250,000,” said Poczatek. “It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off.”
“Generally it means being less productive,” she said.
“The motivation for a lot of people like me – dentists, entrepreneurs, lawyers – is that the more you work the more money you make,” said Poczatek. “But if I’m going to be working just to give it back to the government — it’s de-motivating and demoralizing.”
It's called "going John Galt," after the protagonist of Ayn Rand's novel, "Atlas Shrugged," who refuses to provide the fruit of his intellectual abilities and labor to a rapacious government and its parasitic dependents.
Over at National Review's Corner, Stephen Spruiell posts reader responses to his earlier thoughts on tax policy and its impact on taxpayers, "Bracketology."
I am a CPA who spent the the better part of the last 7 years working in public accounting. It is not only the increase in the rate that scares those who are making the $250K plus, but the FICA taxes Obama wants to throw on it too. So really it would be a jump not to 39%, but more like 53% when you factor that in. Most of my savvier colleagues in public practice, as soon as it became apparent that Obama was going to get elected, immediately started advising clients to accelerate as much income into 2008 as possible and push as much expenses into 2009. Pay any large dvidends or distributions out of your company in 2008 before either the dividend tax rate goes up or those distributions from your S-corporation are subject to FICA. On top of that, some of the earners will probably ease up, figuring it isn't worth giving up 60% of your income (when your factor state taxes) to the government. Some who own small businesses will just not hire or invest in new equipment.
Chait obviously doesn't know a lot of CPAs or a lot of small businessmen.
Another reader comments:
I have a few thoughts concerning your Corner post titled Bracketology. My wife and I are both Pediatricians. We own our own practice together. We have one PA and 7 other employees. We each gross about $200 K a year. We have 3 young children at home, 2 of which are not in school. We also employ an in home Nanny. My wife has been torn for years about not being at home for these children, which are our biggest investment in the future. We operate parallel S corperations as PC's, with a 50/50 ownership of the LLC that is our business. We file taxes jointly. After crunching some numbers concerning the President's tax hike proposals, I have come to the following conclusions. If the President's plan is inacted, we will do the following:
1. My wife will become a stay at home mother.
2. At least 3 of my 7 employees will be released.
3. The practice will downsize to a smaller office space, i.e. less rent.
4. The number of patients cared for on a daily basis will drop by 40%.
5. My wife will come out of the forced ER call schedule for good.
6. I will gross $249,999.00 a year, exactly.
7. The net income of our personal home will decrease by less than $10 K a year from where it would have been if we changed nothing.
This reader focuses on the difference between how a kleptocrat socialist views the capitalist decision-making process (ick!) and how an actual capitalist decides how to react to a hostile business environment.
Mr. Chait’s problem is that he doesn’t think like a businessman. The goal isn’t to maximize profits. The goal is to maximize return on investment and minimize risk. Tax increases diminish returns, so the businessman assesses the diminished return in light of risk. What must be invested and at what risk to earn the diminished return? If it’s relatively easier and less costly to earn that $250,000th buck, then it might be a good investment. If not, I’ll look for ways to reduce the risk, and cost, or I’ll invest the capital someplace else. For example, I might run the numbers on paying a high dollar tax accountant to find me a “loophole,” or I might look offshore.
The idea that there are idiots earning in excess of $250,000 is, well, idiotic, and the idea that a sane businessman will blithely pursue diminishing ROIs is even stupider.
Markets respond to economic policies, good or bad, and markets are simply an aggregate representation of the behaviors of individual microeconomic production units, i.e., people, and people change their behaviors based upon a cost-benefit analysis.
It seems like the markets -- and those individual microeconomic production units -- are getting ready to scale back investment, spending, and, worst of all for the taxman, earnings.
Spruiell has more examples of the counterproductive impact of Obama's tax hikes; just keep reading below the fold.
Posted by Mike Lief at March 4, 2009 07:20 AM
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