NY Post: Huge 25% Tax Hike Kills Small Business Owners
Sunday, April 4, 2010 at 8:34PM Insightful piece that appeared in the NY Post earlier today. Just more information that you knew was coming, but that will make you want to throw up:
America's jobs growth engine is being choked to death.
A record 25 percent increase in the taxes against US small businesses -- from costs associated with new health care law, to an increased Medicare tax, increased capital gains taxes and higher state and city taxes -- is repealing any ability of these entrepreneurs to add jobs to their payroll.
And the numbers for New York's small- to medium-sized business are just as harrowing.
By one estimate, the effective tax rate on the 26 million small businesses across the country -- which in the past have accounted for more than half of the job growth in the US -- has jumped to 50 percent from 40 percent, sucking valuable cash from the businesses.
These dollars could have been used to add to payrolls or make capital improvements -- but instead will be siphoned off by Uncle Sam, state and municipal governments.
"The impact of these higher taxes and reduced hiring will be a recovery cycle that will be much longer, be slower to take hold and be without much job growth," said Al Angrisani, founder and CEO of Angrisani Turnarounds and former US Assistant Secretary of Labor under President Reagan.
A survey of 200 small businesses across the US by the economist found 51.5 percent of business owners in March were concerned about the viability of their businesses -- up from 49.5 percent in February. More than eight million jobs have been lost during the current 28-month recession.While a healthy 162,000 jobs were added in March, it was accomplished with the help of heavy government stimulus. Meanwhile, the average length of joblessness rose to 31 weeks and hourly earnings were down, albeit slightly.
In New York, interviews with more than a dozen small business owners by The Post found a group of owners hurting under the weight of the new taxes.
Teresa Kramer, co-owner of Northside Bakery in Greenpoint said she is scared.
"We'd really need to raise our prices by 20 percent to stay even because our profit margins are shrinking as costs keep rising everywhere -- for garbage and services, commuter taxes and other taxes," said Kramer, a Polish immigrant who operates the two-store division of Old Poland Foods. The business employs 20 and rings up annual sales of about $2 million.
Kramer has stopped short of raising prices, at least for now. She added: "We're producing more bread and product -- but we're still making less and less profit."
In Manhattan, Robert Schwartz, the CEO of a three-unit shoe store chain, said he has never seen the tax burden this bad.
"This has been as hard as we've been hit in my 36 years of running this company," said Schwartz, owner of Eneslow Shoes, which employs 50 people, including part-timers, on annual revenues of under $10 million. "It's a tough economy and our costs continue to rise."
Schwartz, who says he's putting his salary back into the business in response to the environment, adds that overhead from taxes and other outside charges have become unbearable. "I certainly don't think the new health care law will save me any money," he said. "Now New York City wants to develop this paid sick leave legislation that would give employees up to nine paid sick days. It's ludicrous. It takes the oxygen out of the blood."
Fran Biderman-Gross, CEO of Advantages, a branding, mass communications and marketing company in Fresh Meadows, said with health care becoming mandatory she envisions more companies switching to independent contractors -- who don't require pricey health benefits -- in order to stay in business.
"We created 16 million jobs during the recovery in the Reagan administration by cutting taxes and offering incentives to hire," Angrisani noted. "Small business tax cuts are not compatible with the philosophy of this administration."
Jobbing small business
The 26 million small businesses in the US — like Eneslow Shoes, headed by CEO Robert Schwartz— are getting buried under an avalanche of new taxes, which include:
* An increase of 4.6% in federal taxes from 35% to 39.6% (expiration of Bush tax cuts)
* An increase in capital gains taxes from 15% to 20% (expiration of Bush tax cuts)
* A new tax of 3.85% on investment income, dividends, rents, royalties mandated in the new health care bill
* An increase in the Medicare payroll tax to 2.35% as mandated in the new health care bill
* In states like New Jersey and others, state and municipal taxes have been raised by the average of almost 2%
Reader Comments (8)
This is really maddening, but the truth is coming out. The media will do everything in their power to keep these stories out of sight. You know, bias by omission.
Like most people, I have grown to hate the phrase 'when life gives you lemons, make lemonade. But the principal that it's based on is something I try to do. What is happening to this country is criminal and we should fight it as hard as the law allows. But it appears that lots more damage will be done before real conservatives gain control again.
This is where the lemonade comes in. Ms. Biderman-Gross (I also hate hyphenated names) said she envisions more small businesses switching to independent contractors. I would enjoy seeing all employees of small business become self employed contractors. They would pay all their FICA, find a suitable replacement if they take time off such as vacation, maternity leave,etc.. They would carry their own insurance including health, workman's comp., liability, etc..
They could join a labor union and negotiate with themselves, that would bring those pensions down. But the # 1 reason would be NO INCOME TAX WITHHELD. All income tax would be paid quarterly, by the employee/contractor, out of his earnings which hopefully he has in his own banking account.
In less than one decade: no more liberals, no more labor unions, no more wasteful spending of any kind. Politicians would make sure the American people approved of every spending bill at the risk of having their butt whipped. At last they would truly become 'public servants'.
That's a very interesting concept HB and I think very accurate. It would definitely put a crimp in the left. Well done.
By july these Democrats will have jammed down our throats so much God awful BS
that people will be screaming in the streets for the Republicans to take control of the
eruption of power grabbers in Washington....If we can survive this catastrophic
failure and put our government back on the path of sound fiscal reform, it just might
be fifty years before a Democrat is elected to office again.....One can sure hope and
must agree we deserve some faith in our direction....
Interesting concept HB. Without employee match, FICA would be cut in half (wouldn't it?) or would you as an independent contractor have to pay both the employee and employer share.
Absent monthly withholding, quarterly withholding would diminish cashflow for the government as well. Probably the best outcome however would be the demise of labor unions.
Of course, to fight all these positive outcomes, the government would impose a new self-employment tax.
Henry Waxman will probably drag the NY Post and Al Andrisani in for hearings. President Obama uttered the word "jobs" and a bunch of bookworms from academia said in a study the health reform legislation would help small business - therefore it must be so. He needs to straighten them out, they don't know their own business and what's good for them.
Waxman would never consider bringing in small business people to ask them what is preventing them from being successful and hiring more people. He's either too arrogant or too stupid.
I don't know which day will be the biggest celebration for me, the day Waxman leaves public offiice or the day Barney Frank, Obama, Harry Reid, Nancy Pelosi, Chris Dodd, Barbara Boxer, Maxine Waters, Dick Durbin, Steve Driehaus, Bart Stupak, Chuck Schumer, Alan Grayson, Max Baucus, Joe Biden, or David Obey leave public office. They'll all be reason to celebrate.
Yeah Bruce, FICA is not reduced, the self-employed pay both parts. When you see guys who have been laid-off from their job and try to keep working by doing jobs like house painting, lawn mowing or any other job to have an income other than allowing the government to take care of them, they are subjected to some pretty costly requirements.
15% FICA, city and county and sometimes state license, liability ins.,workman's comp. And if you choose to be self-employed, you are not eligible for unemployment compensation.
It's either that or become a criminal and hide your income.
The reason I stress doing away with the income tax withholding is that it would force people to pay attention to how much they pay in taxes. The way it is now, lots of people think their net income is all they earned. Once the American people realize how little of their income they are ALLOWED to keep, the tax revolt won't be far behind.
Point well taken, HB. Removing withholding would definitely be a shock to the masses. Most think they're getting government money when they get a tax "refund".