Our president knows nothing...
Why Obama is going to cause job losses
Posted on :
12-16-09 |
So, PrezoBo recently decided that talking to a bunch of union reps along with his cabinet of people who have never worked in the private sector will give him some great ideas on how to help jump start job creation. We pretty much knew we were in trouble before we even saw the attendee list.
I would like to address the complete waste of an idea he proposed to lower the capitol gains tax on small business to 0% for one year. This is so ridiculous, it shows me that Obama doesn’t have the first clue how businesses are created or run in this country. I think he just wanted to say he was lowering taxes on small business without actually having to do anything, and he hopes nobody will know the difference.
So I’m here to help…
First of all, what is a capitol gains tax? Capitol gains are when you make a profit in an investment. If you buy a stock and the price goes up, and then you sell it, it’s considered a capitol gain. Likewise with bonds or other investments made in businesses. Currently the capitol gains rate is 15% if you hold an investment for at least one year before you sell it. (Although Obama has talked about raising this to 20% or 25%) If you sell an investment before a year has gone by, then you pay ordinary income taxes to the IRS at the end of the year on any profits you made. The idea is to have people invest for the longer term, so they can keep more of their own money.
Now when someone wants to start a small business, they go out and look for investors. These investors put their money into a pool, and then the pool is divided into a certain number of shares in the new company. Most investors are hopeful that someday, they will see a rather nice return on their investment, but they also know they could easily lose it all, since 50% of all new small businesses fail within the first 4 years. Only 29% are still around in ten years. So usually, after a business is started, even more investors are asked to come in, and buy more shares in new “rounds” of funding, so the business has more money to keep going until it can pay for its rent, salaries, utilities, and products out of its own cash flow.
Along the way, the business owners pay taxes for any profits they make just like everyone else. It’s usually ordinary income tax, or 30-35% at the end of the year on anything they made. The business owners are the stockholders. So every year, if they were lucky enough to invest and help start a company that is actually turning a profit, then they have to pay gobs of tax on that profit. The stockholders are not paying capitol gains taxes, because in order to pay a capitol gain, they would have to sell the company and their stock.
In other words, the only way a small businesses investor could take advantage of the capitol gains break is if they start a business and it becomes profitable, and they find someone to buy it from them, for more than they originally invested… all over the course of only one year.
So, if most businesses take 3 to 5 years before they even start turning a profit, then how in the hell would giving a new business investor a capitol gains break for only a one year period help anyone start a new business?
The short answer… it won’t.
In fact, I see it as a jobs killer instead.
In order to take advantage of a capitol gains break of 0%, then someone would have to sell the company to another interested party. So either the investors hook up with an investment bank, or some other rich folks, who like the business they have, and want in, and are willing to pay a premium for it. Or perhaps, since business valuations are down right now, someone might want to take two businesses and merge them together, since they can get the two businesses for a good price, then they can cut overhead and redundant employees, and make even more money from the combined entity.
As anyone who has ever been working for a business that was being sold or merged knows, the first thought in every employees head is, “Will I still have a job”? If your company is being merged with another, is there someone who does your job better and cheaper at the other company? Will they decide to go a new direction and no longer need your job function? Will they outsource customer service to India? Will my new boss like me?
So the way I see it, the end result of Obama’s proposal to allow 0% capitol gains taxes for one year, will not get any new businesses started, it will just get existing small companies sold, as shareholders of profitable small businesses everywhere realize if they sell this year, they will get to keep an extra 15%. No one can start a business, make it profitable, and sell it in a year. It’s impossible. So the only people who will benefit from this proposal will be investors who already own a profitable small business, which has probably been around for 5+ years already, and has grown steadily.
So everywhere across the country, investors will push as hard as they can to sell small companies they already own, or try to swing deals to merge their company with another one, and as these businesses get furiously sold off, people will start losing their jobs, as they are all consolidated into larger small businesses.
This is the plan our President, a man who has worked less than 5% of his entire life in the private sector, is proposing to save our country from more unemployment. The end result is a bunch of rich people will get richer, bankers will get richer as they orchestrate these mergers and deals, and the little people, like me and you, will lose even more jobs.
But hey… it’s a tax cut for small business… and who doesn’t like a tax cut in a recession? |
