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All those are not exactly the questions I myself had, they were in the same line.  The voice of the person on the street -- especially when they agree with you -- often has the ring of healthy common sense.  However, in matters economic, I always fear that common sense = oversimplification.

GreatZamfir: But there are also small businesses with rich customers, and these are hurt at the same rate that the ones with ordinary customers benefit.

And my first reaction to this was, "So what?  Let them eat bread."

But then I realized, a lot of small businesses that cater to rich customers may nevertheless employ middle and lower income people.  For example, someone who manufactures or installs jacuzzis or just plain old landscapers/gardeners.

A similar problem for the other guy: why should higher tax rates encourage you to invest in your company? The whole point of investment is that you will get even higher earnings in the future, so at best you postpone the taxes together with your income.

My "common sense" answer to this would be that -- like the guy said -- you make reinvestments, discount them from your adjusted gross income as an expense, and avoid paying the higher tax.

Then you say, but isn't the whole point of running my own business to make money for myself?  For many if not most people, probably true.

But even then, is it too naïve to believe that if you are incented to make those investments in your business now (i.e. to avoid having to pay Obama's higher taxes), then in the long run (assuming you made those investments wisely), your business will be even bigger and stronger, and thus you will be in a more secure position to enjoy your earnings, even at a higher tax bracket?

And yet, then I ask myself:  What if I purchase a relatively expensive piece of equipment as my reinvestment, and then suddenly economic conditions take a turn for the worse, and so now I cannot get a return on the investment in that equipment as quickly as I wanted to?  I might be able to sell back the equipment, but taking all things into account, it could very well be at a loss.  In such a scenario, it seems I might indeed have been better off paying the higher tax on my retained earnings rather than putting faith in the long-term pay-offs of reinvestment.

I am not a small business owner, so this is pure speculation.  Would be curious what more experienced people would have to say.

Truth unfolds in time through a communal process.

by marco on Wed Oct 22nd, 2008 at 06:09:51 PM EST
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