Issue 273 Business income tax alternative February 17, 2014

Finishing off the theme of taxation (I think I said that in the last issue, oh well) we are going to look at another model inspired by Herman Cains 999 plan and Paul Ryan's budget idea. The concept is simple, tax actual profit of a business, not the whole amount they make in a year. Reason, because what they make in an entire year is not profit, for profit is what a business makes after payroll, taxation and any and all other expenditures. So here is how it would work in concept.

Part 1: By using the procurement records for say furniture, materials, and equipment a business can easily subtract these amounts from the overall amount of money they take in. A simple example would be a furniture store. They buy various pieces of furniture from manufactures to sell adding on ten percent to the price they paid to make a profit. What is taxed is that ten percent that has been added on as that is the actual profit made. Simple right? So a furniture store buys a chair for $90 but sells it for $100. When sold the profit is ten dollars and thus that ten dollars is what is taxed. Yes my examples are simplistic, but this is how it works in real life if such system would be put in place.

Part 2: What also should be deducted is the workers salaries and the cost of their health care. Just like when a business procures equipment, a business also has to continue "procuring" the labor of their workers. As such, allowing their salaries to be tax deductible would go far and wide in helping that business meet its "real" bottom line in respect to profit. For our purposes the first $100,000 of each worker (not employer) is tax deductible. So if you have three workers making $20,000 a year, then the business owner subtracts that overall money from the money made to ascertain the overall profit. So if the business made $100,000 after all other subtractions, then subtracts for the three workers salaries the business owner would subtract $60,000 which leaves an overall profit of $40,000 to be taxed. If health care costs are factored into this equation then there would be much less money to be taxed as that means there was a lot less profit. This system allows for any and all expenses by a business to be accounted for without any special forms (such as those that exist in the existing tax code) as payroll and other expenses are already accounted for in the businesses everyday practices.

Why do it this way?: Simple, businesses are what make the economy move. The current tax code in America is a monstrosity that suppresses businesses and keeps only those that the government likes in power. By doing it this way instead of the status quo, it enables businesses a chance to actually grow rather than have their budgets squeezed by the current unfair tax code. Currently the majority of businesses pay the personal income tax as opposed to the business tax based upon its rate, complexity and how it stifles growth. Remember, the current business tax taxes the overall money a business makes, not the actual profit of the business which is why small businesses would be crushed under the current code. So switching to this method solves that problem. Likewise, the business tax should be considered the personal income tax on an employer to make it fair as the business owner being taxed again based on income makes no sense as the profit from the business is their income. This is yet another reason why small and medium sized businesses pay the personal income tax over the business tax so as to avoid this double taxation.

Conclusion: The goal is a simpler, learner and a more responsive tax code. This version eliminates all special forms and simplifies the code enough to allow business owners to be able to grow without fear of the tax code becoming more punitive. We need reform and if we really are going to keep taxes on businesses, then it must be done in this manner that prevents monopolies, and allows for business growth. It is time for real reform that works and this ladies and gentlemen is the best answer right now.