One of the most annoying things that I\u2019ve been reading is the in-the-press debate over whether the Obama administration should extend Bush-era tax cuts. Specifically, it rubs me the wrong way that the group least likely to have their tax cuts extended is referred to in the media as \u201cthe richest 2 percent of American households,\u201d \u201cthe wealthy,\u201d \u201cthe highest earners,\u201d and \u201cthe wealthiest\u201d as was done in this story in today\u2019s Pittsburgh Post-Gazette.<\/p>\n
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The use of these words makes it seem like the Donald Trumps and the Bill Gates of the world aren\u2019t paying their fair share. But the fact of the matter is that this \u201c2 percent\u201d isn\u2019t comprised mainly of these celebrity types. It is comprised heavily by business owners, including the owners of many of your suppliers.<\/p>\n
You see, this \u201ctop income bracket\u201d begins with individuals who make more than $200,000 per year or families that make more than $250,000 per year. Sure, that sounds like a lot of money for a person or couple to make, but consider this: in the US tax code, any business that is organized as a \u201cSubchapter S Corporation\u201d has its profits taxed as individual taxes on the owner\u2019s tax return. So, if some of your suppliers are Subchapter S Corporations and their profits exceed $200,000 \u2013 not too hard for a mid-sized company, right? \u2013 then the owners (i.e., the businesses) will see their taxes go up if the Bush-era tax cuts aren\u2019t extended.<\/p>\n
Another thing to keep in mind is this: the profits are taxed irrespective of whether the business plans to reinvest those profits in the business in the coming year<\/em>. So, let\u2019s say that a business\u2019 income statement shows a profit of $300,000 on December 31, 2010. Even if that business wants to use that money to hire a few employees on January 1, 2011, too bad. The government will tax that profit and leave the business with close to half of what it started with after the federal government, the state government, and the local government get their fingers into the pie.<\/p>\n The talk of government not only maintaining but raising taxes on business owners isn\u2019t real conducive to driving down the unemployment rate \u2013 which incidentally was reported today to have risen to 9.8% \u2013 is it?<\/p>\n What does this mean to a procurement professional?<\/p>\n It means that, if taxes are raised for \u201cthe wealthy,\u201d your suppliers are going to get to keep a smaller percentage of the revenue they bring in. For you, that might mean that suppliers will attempt to raise your prices because they are going to need higher revenue to maintain the same after-tax profit or it might mean that they will try to cut corners so that same revenue \u2013 lower costs + higher taxes = same profit.<\/p>\n And what does this mean to the competitiveness of American businesses in the global economy? It means that other countries\u2019 suppliers will be more attractive.<\/p>\n Any way you slice it, increasing taxes on this \u201c2 percent\u201d doesn\u2019t seem very smart economically. Unfortunately, the US has spent itself into a corner. But I don\u2019t see continuing to spend \u2013 at the expense of the business owners who can make the decision to \u201chire or hoard\u201d \u2013 as the solution.<\/p>\n Recommended Reading<\/strong><\/p>\n Net 30 Terms: A Thing of the Past?<\/a> One of the most annoying things that I\u2019ve been reading […]<\/p>\n","protected":false},"author":12,"featured_media":4053,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2969","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\n
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