Monday, December 12, 2011

231 small business owners owe Susan Collins dinner

I am very pleased to be represented by two moderate Republican Senators, Olympia Snowe and Susan Collins. I really believe that moderation is the only way we can get out of this terrible mess in Washington DC. But I must tell you about a very frustrating experience I had last week with regard to Senator Collins. As I understand it, there was a bill in the Senate that would extend the payroll tax reduction for all Americans. Collins “held her nose” and voted for this bill. She was unhappy because there was no consideration for “small business”. Here is her official statement:

"I have long said that multimillionaires and billionaires who are not running businesses could pay more of their income to help us deal with the deficit. But I feel strongly that we must ensure that small business owners who pay taxes through the individual income tax system are protected. These are our nation's job creators. That is why I have called for a "carve-out" that would shield these important small businesses from tax increases that could make it more difficult for them to grow and add jobs.

A day or two later, my Senator presented a bill that had the “carve out” she was looking for in the original bill. Here is a report from the news conference:

Collins said that of 392,000 Americans who filed income tax returns last year who earned more than $1 million, 13 percent of them were small business owners who filed business income under a personal income tax return and would be protected by the exemption.

Ok – so let’s do the math. In the US, there are approximately 140 million tax filers. In the state of Maine, there are approximately 633,674 tax filers. If, in the US, we have 392,000 tax filers who make more than 1 million in a given year, how many live in Maine.


This simple algebra equation yields an answer of 1,744. That is assuming that all things are equal and ignoring the fact that a huge number of these super rich live in New York and Washington DC.

So, if we consider the 13% who are “small businesses”, the number of constituents that Senator Collins is fighting the good fight for equals 231. That’s right, 231 possible small business owners who may get taxed an extra 3.25% on their earnings over 1 million dollars. These “job creators” are, allegedly, going to sit on their hands, not working hard to get ahead and develop those new jobs because of a 3.25% tax on their income over 1 million dollars.

I have been a small business owner. My family owned and operated a very successful reprographics business in Norwalk Ct. So let me explain how this works.

Reprographics Plus was a sub chapter S corporation. That means that we would pay corporate taxes on profits as well as personal income tax on those same profits – double taxation. There is a simple solution to this. Our fiscal year ended on July 31st. Every year around the middle of July, the accountants would report to us how much “profit” the company was going to make. We would then “bonus” ourselves the profit in accordance to how much stock we owned. Reprographics Plus never made a profit (if we could help it) and we were taxed on our bonuses as part of our adjusted gross income.

In the above scenario, Senator Collins is concerned that if my bonus pushed my adjusted gross income over 1 million dollars, I would be unwilling or unable to generate the jobs my (wildly) successful business should generate. Sorry Senator, I think you have other constituents who may need your help more.

Take, for example, MaineCare – the state Medicaid programs. You know, this is one of those entitlements that undeserving slackers use to sponge off the government. The governor of Maine wants to cut 120 million from MaineCare. About half of that money is paid to “private nonmedical institutions” (read nursing homes) also known as PNMIs. Here is a quote from the paper yesterday:

Richard Erb, president and CEO of the Maine Health Care Association, said his organization represents 100 of the 135 PNMIs in Maine that serve the elderly. Of those 4,000-plus residents, the average age is 81, 70 percent are female, 89 percent have no spouse, and 46 percent suffer from Alzheimer's disease or another form of dementia.

And 79 percent, Erb said, rely on MaineCare.

What happens to them if they're simply erased from the MaineCare rolls? "I don't think that question has been answered yet," Erb replied. "There's a lot of shock coming from our member facilities -- there is also the reaction that they can't possibly do this. But I haven't seen a real proposed solution yet."

So, lets do the math.

79% of the 4000 MaineCare residents would be 3,160.

Now…whom do you think needs the Senators constituent services more, the 3,160 old, destitute, demented elderly women or the 231 millionaires?

OK – it’s kind of a cheap shot. But you get my point. There are 1.3 million people in Maine. Who is this woman representing?

In the American Golden Era of prosperity and power, 1945 to 1980, the tax rate on rich people was as high as 91% over a certain amount. With that money, we built the greatest country known to the world. I’m not advocating 91%, but I don’t buy the line that letting the rich keep their money is going to help me.

By the way, my family business…yea, we sold it to a consolidator. Selling the business was the smart move. Technology was killing the small family firms. The consolidator built a nationwide business out of a dying industry and sold out to Wall Street before anybody realized that the industry he had consolidated sold the modern version of buggy whips. The net effect of that “deal” was a hundred or so business owners selling out and getting their bag of money and all the shops degrading into poorly managed, marginally profitable units, owned by stockholders who were sold a pig in a poke.

The consolidator is now a very rich man and my old employees are either unemployed or working for exploitive wages. I don’t regret my decision to sell out. But I don’t think my story is very different from many other industries. That is the real truth about how all the money has flowed to a small group of very rich people. It didn’t create jobs and it didn’t “trickle down”. It just made a small group of very smart and very rich people a lot richer.

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