My wonderful husband and I are celebrating our 30th wedding anniversary this week. We deeply treasure our family and appreciate our many blessings. Another of our accomplishments together is the small business we started nearly 25 years ago. We had two and a half children way back then (one on the way) and somehow, with youthful optimism, the time seemed right to strike out on our own.
It took tremendous energy and resolve to survive those first years. We lived on a shoestring and often paced the floor at night wondering how to make ends meet. But slowly we were able to build a client base, hire employees, buy trucks and build a building. Step by step.
Everyone realizes that starting a small business is a leap of faith but what most don't know is that the leaping continues; the risk-taking multiplies. It is with this in mind that I offer concern for small businesses today, in our country and our community as well.
The financial crisis is taking its toll on North Idaho, whether we deserve it or not. Businesses totally unrelated to the sub-prime mortgage meltdown are feeling the crunch and Kootenai County unemployment has jumped to levels even beyond the state average. It is frustrating for any business owner to lay off great people for reasons beyond their control but most businesses across the country are facing that very problem.
Now our newly elected federal administration is considering tax increases on people making over $250,000 per year. Sound like a good idea? Not in my opinion. Let me explain.
There are basically four ways to be in business: You can be a C-corporation like the big boys, a sub S-corporation, a LLC or a sole proprietorship. The C-corps pay their taxes at the corporate rate of 35% because the US has the second highest corporate tax rate in the world. (A reason companies move overseas). The remaining three business types all pay their taxes at the individual tax rate. According to the National Federation of Independent Businesses, about 80% of small business owners fall into this category.
Here is a critical point: All the profits from these businesses must be reported to the IRS as the owner's personal income. But the owner cannot use all that money for personal needs or the business will go under. They must leave most of it in the business for cash flow and company growth. So increasing taxes on individuals above $250,000 will hurt many businesses, right now, when they are already struggling. It will make things much worse.
You won't have to worry, will you? The increases won't hurt you, right? Not unless you own a business. Not unless you work for a business. Not unless you buy groceries from a business or fill your gas tank at a business or buy any products or services at all.
Uncle Sam may not raise your taxes but things will cost you more money and could even threaten your job. Remember Thomas Jefferson's famous line, "A government big enough to give you everything you want is strong enough to take everything you have." Taxes on one group affect us all.
The nation will get through this crisis and the economy will improve. Our experience of 25 years in business helps us weather the storms; we know the downs will be followed by a rise again and we trust that lessons will be learned and safeguards put in place.
It takes hard work and commitment to succeed in business, and certainly in marriage as well. Each requires risk, going all in, putting everything on the line. So let's hope for sensible governmental restraint, pray for a quick economic recovery and toast the courage of small business owners everywhere. Cheers!