

I am a job creator who creates no jobs - petethomas
http://www.washingtonpost.com/opinions/i-am-a-job-creator-who-creates-no-jobs/2011/09/20/gIQAhpgGjK_story.html

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alttag
From speaking with a few published authors, the creation of a private C-corp
is standard practice to spread income from advances and royalties out over a
longer period, which provides not only lower taxes, but a steady(-ish) income
stream.

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tdfx
Assuming I'm understanding the double tax correctly... wouldn't that still be
taxed at the corporate tax rate and then taxed again when it's paid to the
employee? I can't imagine a situation where that would be less expensive than
being taxed one time, even at the highest income bracket.

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alttag
I'm not a tax professional, but corporations are taxed on income, not revenue.
Tax preparation fees, travel costs, conference registrations, pension
contributions, and other expenses of the "small business" author (computer,
internet, mailing manuscripts) all turn in to usable money that isn't taxed.
(Via income tax, I mean. In some cases property taxes may apply.) Expense
tracking becomes more of a chore than for the average wage earner, but there
are trade-offs.

The author's "corporation" can also manage paid salary from year to year to
correlate with deductions or navigate tax brackets, further minimizing any
double-tax effect.

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tdfx
I file as an S corp and deduct all of those expenses, as well. Except the
money I pay myself as a salary is not counted as income on my business tax
return... my understanding is that for a C corp, it would be.

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maratd
Wrong. Wrong. Wrong. Small businesses do not exist in a vacuum! They have
partnerships. They use UPS to send packages. They use Microsoft to run their
computer and Dell to build it. They buy supplies at Office Depot or Home
Depot. Every dollar they spend on their business gets spent at a larger firm
that employs hundreds if not thousands of people! One-man operations DO create
jobs. They just don't create them in their own company!

~~~
silverbax88
The point is still valid. Giving him a tax break does not mean he will start
shipping more packages automatically. There has to be a market, first. It's
demand-side versus supply-side economics. The only reason he would spend more
is because he sees market opportunity, not because he has the money to spend.

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maratd
Market opportunity is infinite and is only limited by your imagination. You
make your opportunities, they aren't handed to you gift-wrapped. It also just
so happens that the companies that are best at creating market opportunities
out of thin air happen to be the small ones!

~~~
perfunctory
The point is still valid. How is the tax break going to affect his
imagination?

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maratd
Wow. OK. I'll spell it out for you gentlemen. I discover $1000.00 in my bank
account. Before, I just had $50.00, so this is quite a boost. I wanted to move
my business (me, myself, and I) from just regular handiwork to cutting down
dead trees. Before, I couldn't afford a chainsaw, a ladder, and safety
equipment. Now I can. I can also afford some advertising, business cards, and
a decal for my car. Now multiply me by a 1000. You've created jobs in the
chainsaw manufacturer, ladder manufacturer, advertising agency, printing
company, and the decal making guys. Get it?

Please stop assuming the pie is always fixed. Demand is not always being met.
New markets are being created all the time. Oh, and while tax breaks don't
affect the function of your imagination, they sure do help with bringing stuff
out of your imagination into reality.

~~~
silverbax88
Okay, you are stating it as if the money ($1000) is 'found'. But what we are
describing is tax breaks, not the lottery. Tax breaks just mean less money
paid on profits.

In order for you to suddenly have $1000 more, you would already have had to
have had the money. In your scenario, where did the $1000 come from? You are
talking about a small business loan where you have no revenue and are starting
a new business, not tax breaks.

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maratd
Show me where in my post I was talking about a "small business loan", "no
revenue", and "starting a new business". I was talking about an existing
business branching out into a new market. I am not going to repeat myself
again.

~~~
chairface
I believe they are saying that you would have bought the chainsaw, ladder, etc
tax-free already, as a business. A tax break would have absolutely no effect
on the ability to afford these things in the scenario you described. The
"found" money is therefore more analogous to a loan than a tax break.

~~~
maratd
The way a one-man operation works is that you file taxes once a year. For you
to be able to pay your income taxes, you need to save up the money you will
fork over, otherwise your ass goes straight to jail. There is no withholding
or anything like that.

So you set up two bank accounts and deposit say 30% of any money you would use
for your non-business expenses. That money is forbidden. You cannot touch it.

> I believe they are saying that you would have bought the chainsaw, ladder,
> etc tax-free already, as a business.

Pay attention. With what money? You have no money. ZERO. All your money goes
toward your business expenses and the rest goes toward non-business expenses
and taxes.

You have no business credit. The only credit you have is personal and that's
maxed out.

The overwhelming majority of one-man operations are not drowning in cash.

> A tax break would have absolutely no effect on the ability to afford these
> things in the scenario you described.

This makes ZERO sense. With a tax break, I can withdraw some of the money from
my tax bank account and use it for whatever I want. It _is_ found money. On
top of that, spending that money on my business means I have no tax obligation
on those found funds.

~~~
chairface
If your business expenses are higher because you're buying chainsaws, then
you're putting less money in your 30% "forbidden" bucket. It's a wash.

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forgottenpaswrd
He creates his own job, so he creates one job.

His statement is a fallacy, if you use his little trick(his small business = 0
jobs) and multiply by the number of small business you have a false statement:
"small business creates no jobs".

We know by simple statistics that small business in fact create most of the
jobs, even if they only employ themselves and their family first.

~~~
silverbax88
That job has already been created. A tax cut will for him will not magically
mean he will decide he has enough extra cash to create a meaningless job.

~~~
jsmcgd
Though it will mean that other people are more likely to start their own one
or more man operation.

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zumda
Really? I highly doubt that. Most people don't want their own business, they
want a steady income and not think about their jobs after 8 hours. A small
decrease in tax won't change that.

~~~
jsmcgd
Most people might want that but this legislation isn't aimed at most people.
It's for the segment of society that do want their own business.

~~~
perfunctory
And those already have their own businesses. And if not, quitting your day job
and starting a business... -1 + 1 = 0

~~~
jsmcgd
There are many more people who are employed and thinking about starting their
own business than have actually started their own business.

Creating your own business: +1 job. Freeing up a position at your previous
employment: +1 job.

1 + 1 = 2 :P

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tomjen3
I am not a founder, but I have wanted to start my own business for a long
time.

I would have serious reservations about hiring somebody though. First you add
a recuring monthly expense to your business, which can seriously impeed
cashflow especially if the business has big cycles.

Thats not so bad though, the part I am most concerned about is being subject
to an entire host of regulations, many of them very subjectively defined. Add
to that the cost of reporting, the risk of lawsuits, regulation of working
environments (no more working out of a room in your house, now you have to
rent an office).

Personally I would be much happier hireing freelancers, since there is little
longterm capital risk, they tend to provide their own tools and the risk of
lawsuits is much smaller (as long as you pay them).

That said, most big corporations were once small and I see little danger in
lowering their taxes even if we end up lowering the taxes for everybody else.
It would be a good use of funds.

~~~
silverbax88
The only reason to hire someone is to ROI on what that person costs. As Paul
Graham has written, the most obvious example is hiring a sales person. If you
have to pay a sales person $75,000 per year, plus benefits, plus office space
and equipment, he/she has to be worth more than that.

If said salesperson can bring in $250,000 in annual revenue, and they cost
$125,000 to keep around, well that's a trade any businessperson would love to
make.

But what if the market size hypothetically tops out at $250,000? You'd never
hire more than one salesperson because by the time you were up to three, you'd
be losing money again. So, at that point, the government could give you a ton
of tax breaks, but you still wouldn't hire more than one salesperson.

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lyudmil
To pour on the skepticism, even if a small business does create jobs, one of
the time-tested laws of small businesses is that most of them fail, thus
destroying the jobs they created. On the whole small businesses are much
closer to a wash in terms of job creation than we're likely to admit.

~~~
tomjen3
I keep hearing that most small business fails. What I don't hear is what
constitutes a failure. Plenty of people choose to make a little money on the
side but those business tend not to last.

~~~
lyudmil
The failure I was referring to is essentially having to close doors for
financial reasons.

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mdda
I'm in the process of building out my startup - now at 13 employees. Would
having 3-5% lower taxes give me an incentive to build out quicker, or change
my plan? : NO.

~~~
dhimes
Interesting. Can you tell at what % reduction you _would_ start to see an
incentive?

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mdda
The main factors are whether each addition will incrementally add to P&L, and
fit with the rest of the group.

One key point in my business is that most of our wage costs are variable (we
can see the direct P&L impact of every hire : there are no 'hidden'
producers), so finding people who can find a niche is the main challenge. The
principal benefit of being in the States (compared to Europe) is 'employment
at will', so that hiring mistakes can be undone quickly.

As for taxes, paying more is a good problem to have (assuming that all your
competitors are on a level playing field).

OTOH, healthcare costs are a huge burden : It would be far better for my
business if they were variable (i.e. taxed as a % of wages).

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shoham
Funny article, but isn't creating one job a pretty good thing to do, anyway?

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DanielBMarkham
Yes. It is a true statement to say that most small businesses only employ the
owners.

But if everybody created only one job -- their own -- isn't that enough? If I
were getting started, I would love to be around a bunch of guys making
200-400K per year. I'd detail their cars, take care of their lawns, help them
with taxes -- all those people not creating jobs? There are a lot of jobs they
are creating while they are not creating jobs.

I think a much more interesting question would be: why? Instead of the lecture
about evil Republicans, how about addressing the reason so many businesses
don't want to employ anyone? Is it something we could fix?

I've ran a corp for about 20 years now. To me, you'd be an idiot to employ
people in the regulatory and tax nightmare the United States is in right now.
Much better to have a "lifestyle" business and stay under the radar. I'm
probably an outlier -- I guess. I'm sure others have their own reasons.
Getting at those reasons seems like a much more productive use of energy than
grandstanding.

~~~
lotharbot
> _"you'd be an idiot to employ people in the regulatory and tax nightmare the
> United States is in right now.... I'm probably an outlier"_

A couple weeks back, CNN Money asked a bunch of small business owners what
they'd ask Obama to do to make it easier to hire [0].

Several of those interviewed said cumbersome regulations and ever-changing
rules were the main impediments to hiring. There were specific complaints
about corporate tax rates and unaffordable health care. Both the 7th and 8th
slides amount to "stop doing stuff! Stop rocking the boat!"

I'd say you're not an outlier.

[0]
[http://money.cnn.com/galleries/2011/smallbusiness/1109/galle...](http://money.cnn.com/galleries/2011/smallbusiness/1109/gallery.Obama_small_business/?iid=EL)

