Saturday, April 20, 2024

McHugh David: Biden’s tax proposal is a bit… disingenuous

by BIZ Magazine

Another party shift, another tax proposal.

Former President Donald Trump ran on cutting taxes and increasing jobs, it was a major pillar of his campaign.

Dutifully, he and congress lowered taxation rates almost across the board, a move which has seen benefit throughout several markets, including a perceived increase in labor supply, and a reduction in energy costs for most Americans.

However, just two years removed from the beginning of said breaks, it’s still difficult to tell just how much effect the tax cuts will have on the American economy. In truth, the cuts in revenue sources for the government came with no cuts in expenses, a sheet that never balances.

And, historically, never works out.

But, still, the law seemed beneficial in the onset and Republicans, as well as Trump, believed that eventually the jobs created and the reduced corporate tax rate would cause of a surge of new revenue into government coffers.

That hasn’t quite materialized just yet, but that also doesn’t mean it will never happen – it just hasn’t happened, yet.

As the political pendulum shifts, however, America will once again face the immediate shift back to a different tax method and an economic outlook that swings a totally different direction than it has the last four years.

And it seems, well, disengenuous.

President Joe Biden has proposed an increased tax bracket for those making over $400,000, increased corporate taxes from 21% (where they fell under Trump’s plan) to 28% (still under the 35% from before), and, finally, and increase in the capital gains tax.

To focus on the corporate rate, it misses the mark in that most large businesses, or even medium size businesses with a good account department, usually pay no taxes at all, or are taxed on a very nominal rate.

The corporate rate is set regarding profits, not income per se. What’s the difference? Well, companies are taxes on the money they make in income, after expenses are subtracted, as well as other deductible expenses are included – including charitable donations, or federal write offs for specific programs.

As you can see, companies with access to the right firms or having a stellar accounting department can quite easily find ways to avoid paying taxes all together, or pay on a profit amount that’s, in real numbers, much less than what the company actually made for a given period.

It’s an interesting model, to say the least, trying to find ways to tax businesses without allowing those businesses to pass the expense on to the customer.

In the case of corporate income tax, they don’t have to.

Now what’s interesting about all this, is that the actual rate falls upon the small and some medium size businesses. The individuals and companies who can’t fund an accounting department or hire a high-powered CPA are forced to run with the ebb and flow in changes in the corporate tax rate.

Which isn’t very fun, or easy.

Sure, there are plenty of small business owners who have it somewhat figured out by riding the line between profit and loss. That methodology to avoid paying taxes can often bear catastrophe, for a lot of different reasons, or be too hard to track for individual business owners – who are just trying to keep the door’s open – to pay attention.

Moral of the story? Even at 21%, most businesses that are paying the two dimes on every dollar sold are small businesses, and sometimes medium.

The large businesses, which could end up paying hundreds of millions in taxes, usually pay nothing. Simply Google Amazon, Google (Alphabet), Apple, et. al.

Look at Donald Trump’s personal tax records – his loss carry-forwards and reports of low profits are considered good financing by most buisness owners and wealthy people.

It’s the right game to play – avoid paying taxes.

In the end, another tax change is going to affect small businesses the most, and a few medium ones, and it’s way too fast – considering how young the last tax cut truly is – to run off and increase it again.

What’s even scarier? The tax proposal pleases relatively few on either side of the aisle – not a majority.

McHugh David is publisher of the Livingston Parish News.

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