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Tuesday, May 24, 2011

Do the Math: Eliminate Tax Cuts Not Equal to Eliminate Jobs

I found this article very illuminating. It takes mathematics and applies it directly to a political issue. Rather than fanning the flames of partisanship, it cooly looks at the issue of taxes from a more pragmatic point of view. That is another thing I love about math!

My wife and I run a small lodging business in a resort town in New Mexico, employing eight people. Income from that enterprise approaches the bracket that would be directly affected by elimination of the Bush tax cuts. 

We have pondered the personal ramifications of this issue, and have come to the conclusion that increasing our taxes on earnings of more than $250,000 from the current 35 percent to 39.6 percent would have virtually no effect on our spending habits or our lifestyle. More importantly, it would not affect our ability to hire another employee.

Here are some real numbers to illustrate my point.

We typically start employees at $12 per hour. There are 2,080 hours in a working year. Multiplying those two figures gives the cost of one employee for one year: $24,960. Add in FICA and Medicare and we're up to $28,277 per year. Let's remember this $28,000 figure. 

Now, let's say that business picks up and our taxable income increases by $100,000. Leaving the Bush tax cuts in place, we would have $65,000 to spend as we see fit. Repealing the Bush era tax cuts for the wealthy would leave us with $60,400. 

If we really needed an additional employee because of added work demand, that $4,600 difference would just about fall off the priority scale in the decision to hire someone or not.

If business demanded the additional employee, we would hire them and happily go home with the remaining $32,000. The tax rate increase of 4.6 percent doesn't and wouldn't affect our decision to add an employee. This slight increase simply doesn't add up as the job killer the Republican leadership says it is!

Finally, and most importantly, the Republican leadership correctly points out that a large portion of the taxpayers in the over-$250,000 bracket is actually small businesses, much like our own. This is true, but if a small business is struggling so much that it is in danger of folding, it obviously will not even be in this higher income bracket and would not be affected by repealing the Bush tax cuts for the wealthy. 

With that thought in mind, it is clear that allowing the Bush tax cuts to continue for those taxpayers in the under-$250,000 bracket, and letting those cuts expire for those of us above that figure, would actually preserve some of these same struggling small businesses, and create jobs down the road as the economy improves. 

The country would be better served if our legislators imposed tax increases on those of us who can afford to pay them, rather than spouting political generalities that are unsubstantiated and numerically challenged. 


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