All the blather about Obama's small business taxes is sound and fury only, signifying nothing except perhaps how few non-business opinion leaders know what they're talking about when they talk about small business.
Here's the deal, and I say it as somebody who's built my own business from zero to multimillion dollar sales, and 40+ employees, over 20 years -- hardly a neophyte.
Profits, much less taxes on profits, are not a big issue for me, and I suspect in that I'm more like the rule than the exception. As you look at small business, those of you on the outside, please realize that profits are what's left over after we take our sales and subtract our costs and expenses. We don't have a lot of profits. This year, less than ever.
And for the vast majority of us, those expenses include what we pay ourselves. In a normal year, as my business grew up, we never had enough profits to worry much at all about taxes. We paid a lot more taxes on our salaries -- which are a business expense -- than on the business.
So all this trumped up debate on small business owners being mad at Obama because of taxes on business profits above $250,000, for me at least, most of the problem is that people don't understand the term profits. As far as I'm concerned, an increase on the tax rate on profits above $250,000 is a high-class problem; I'd like to have it. Well, maybe not, because when we make that much more than what we spend we like to put it back into the business -- better products, better marketing -- so that we grow.
In almost 30 years of running and growing a business, I've never lost sight of my ranking of what's important, particularly in a self-funded (bootstrapped) business. In order of priority, it's always been:
- Cash flow. Ideally, cash flow self sufficiency. When you don't have deep pockets, or outside funding, you can't run negative cash flow for very long.
- Growth. In most small business, particularly in my area of software and high tech, it's either grow or shrink, not stay the same. And growth costs money. Growth shrinks profits.
- Profits. You do have to make enough to fund growth; but if you use those profits to fund growth, the tax man doesn't call them profits any more. They're expenses, like marketing and product development. And hey, that's taking us full circle. The tax rate isn't the issue.
I can't speak for all of small business -- and none of those other people can either, even though they claim to -- but I will say that what I want from Barack Obama's presidential administration, right now, is avoiding a depression. Fight the big battles. Get the banks lending to small business again normally, get the SBA lending going again, get the major economic indicators right, as soon as you can -- which I know is going to take a while -- and that will make small business healthy. Taxing profits over $250,000 at a higher rate is not a big issue.