Contributed by Steve Schneider, President, CB Insurance
Entrepreneurs invest their personal capital to start and build businesses. They write personal checks to make payroll, to fund equipment expenditures, and pay operating costs. They put their own money at risk in hopes of an acceptable return on their capital. Historically, investment risk taken by the successful entrepreneur has been rewarded by increased profits and a long-standing business venture. Those who opened businesses were lauded for their propensity and willingness to incur risk and for their commitment to community and growth.
Not so much today. In this political season, entrepreneurs are painted as greedy or labeled as Wall Street “fat cats” In reality, most entrepreneurs across the USA are Main Streeters, like you and me. They sit across from friends and neighbors in local churches and restaurants. They get up each morning to work another day–to make a product or provide a service, train or manage staff, attempt to smartly grow a business, and to participate in and enrich a community. Each day across our country, entrepreneurs incur risk and employ others with no guaranty; only the hope of their own success.
On January 1, 2013, the financial success these entrepreneurs seek–the economic reward they pursue by putting personal capital at risk—will be severely diminished. Ordinary income tax rates for many small business owners in the highest tax bracket will increase by over 10%. A new 3.8% Medicare Tax (Obamacare) will be applied to certain investment income, such as dividends and interest income. Capital gains on investments will be taxed at a rate 30% higher than in 2012. Income derived from stock dividends will be taxed as ordinary income, rather than the current 15% tax rate – a whopping +400% increase for those in the highest tax bracket. All this after the company itself has paid up to 35% of its income in corporate taxes.
So what’s the big deal? Those doing well should “pay their fair share,” right? We can always debate whether tax rates of 40% income, 35% corporate, 23.8% capital gains, 40% dividend income, and 55% estate (death) are “fair.” The question today is: “Would you write a personal check to start a business, knowing that almost half of what you earn over time will go to the federal government in the form of taxes?” Or stated another way, “Would you invest your own money to grow a business and employ more people and take more risk, knowing that upon the sale of your business the increased value derived from your investment and sweat equity will be substantially taxed, and, to add further insult, that upon your death more than half of the remaining value might also go to Washington, rather than to your heirs?”
If you are curious why the unemployment rate remains stubbornly high, why GDP growth is anemic, and why many of our best and brightest college graduates remain unemployed, you need only put yourself in the position of an entrepreneur and ask – “Would I write that check?”