September 08, 2009
The Reality of Taxing Small Business
The piece below was written by radio host, author, and political commentator Neal Boortz. The contents have been so well received that it has gone viral on the internet. Please take your time and read it carefully. Even though 'Leo' and 'Carrington Automotive' don't exist, the message should speak loud and clear to anyone who owns or works for a small business.
Transcript of remarks made by Leo Carrington (who doesnít exist) to a mandatory meeting of all employees of Carrington Automotive Enterprises, Inc. (which doesnít exist either) on August 17th, 2009 at the Royal Payne Hotel (a purely imaginary place) in Norfolk, Virginia (which does, in fact, exist).
I would like to start by thanking you for attending this meeting, though itís not like you had much of a choice. After all, attendance was mandatory. Iím also glad many of you accepted my invitation to your family members to be here as well. I have a few remarks to make to all of you, and then weíll retire to the ballroom for a great lunch and some employee awards.
I felt that this meeting was important enough to close all 12 of our tire and automotive shops today so that you could be here. To reassure you, everybody is being paid for the day --- except me. Since our stores are closed weíre making no money. That economic loss is mine to sustain. Carrington Automotive has 157 full time employees and around 30 additional part-timers. All of you are here. I thank you for that.
When you walked into this auditorium you were handed a rather thick 78-page document. Many of you have already taken a peek. You were probably surprised to see that itís my personal tax return for 2008. Those of you who are adept at reading these tax returns will see that last year my taxable income was $534,000.00. Now Iím sure this seems rather high to many of you. So Ö letís talk about this tax return.
Carrington Automotive Enterprises is what we call a Sub-S Ė a Subchapter S corporation. The name comes from a particular part of our tax code. Sub-S status means that the income from all 12 of our stores is reported on my personal tax return. Businesses that report their income on the ownerís personal tax return are referred to as ďsmall businesses.Ē So, you see now that this $534,000 is really the total taxable income Ė the total combined profit from all 12 of our stores. That works out to an average of a bit over $44,000 per store.
Why did I feel it important for you to see my actual 2008 tax return? Well, thereís a lot of rhetoric being thrown around today about taxes, small businesses and rich people. To the people in charge in Washington right now Iím a wealthy American making over a half-million dollars a year. Most Americans would agree: Iím just another rich guy; after all Ö I had over a half-million in income last year, right? In this room we know that the reality is that Iím a small business owner who runs 12 retail establishments and employs 187 people. Now hereís something that shouldnít surprise you, but it will: Just under 100 percent Ö make that 99.7 percent of all employers in this countries are small businesses, just like ours. Every one of these businesses reports their income on a personal income tax return. You need to understand that small businesses like ours are responsible for about 80 percent of all private sector jobs in this country, and about 70 percent of all jobs that have been created over the past year. You also need to know that when you hear some politician talking about rich people who earn over $200,000 or $500,000 a year, theyíre talking about the people who create the jobs.
The people who are now running the show in Washington have been talking for months about raising taxes on wealthy Americans. I already know that in two years my federal income taxes are going to go up by about 4.5 percent. That happens when Obama and the Democrats allow the Bush tax cuts to expire. When my taxes climb by 4.5 percent the Democrats will be on television saying that this really isnít a tax increase. Theyíll explain that the Bush tax cuts have expired .. nothing more. Here at Carrington weíll know that almost 5% has been taken right off of our bottom line. And that means it will be coming off your bottom line.
Numbers are boring, I know Ö but letís talk a bit more about that $534,000. Thatís the money that was left last year from company revenues after I paid all of the salaries and expenses of running this business. Now I could have kept every penny of that for myself, but that would have left us with nothing to grow our business, to attract new customers and to hire new employees. Youíre aware that weíve been talking about opening new stores in Virginia Beach and Newport News. To do that I will have to buy or lease property, construct a building and purchase inventory. I also have to hire additional people to work in those stores. These people wouldnít immediately be earning their pay. So, where do you think the money for all of this comes from? Right out of our profits .. right out of that $534,000. I need to advertise to bring customers in, especially in these tough times. Where do you think that money comes from? Oh sure, I can count it as an expense when I file my next income tax return .. but for right now that comes from either current revenues or last yearís profits. Revenues right now arenít all that hot Ö so do the math. A good effective advertising campaign might cost us more than $300,000.
Is this all starting to come together for you now?
Right now the Democrats are pushing a nationalized health care plan that, depending on whoís doing the talking, will add anywhere from another two percent to an additional 4.6 percent to my taxes. If I add a few more stores, which I would like to do, and if the economy improves, my taxable income Ö our business income Ö could go over one million dollars! If that happens the Democrats have yet another tax waiting, another five percent plus! Iíve really lost tract of all of the new government programs the Democrats and President Obama are proposing that they claim they will be able to finance with new taxes on what they call ďwealthy Americans.Ē
And while weíre talking about health care, let me explain something else to you. I understand that possibly your biggest complaint with our company is that we donít provide you with health insurance. That is because as your employer I believe that it is my responsibility to provide you with a safe workplace and a fair wage and to do all that I can to preserve and grow this company that provides us all with income. I no more have a responsibility to provide you with health insurance than I do with life, auto or homeownerís insurance. As you know, I have periodically invited agents for health insurance companies here to provide you with information on private health insurance plans. The Democrats are proposing to levy yet another tax against Carrington in the amount of 8 percent of my payroll as a penalty for not providing you with health insurance. You should know that if they do this I will be reducing every personís salary or hourly wage by that same 8 percent. This will not be done to put any more money in my pocket. It will be done to make sure that I donít suffer financially from the Democratís efforts to place our healthcare under the control of the federal government. It is your health, not mine. It is your healthcare, not mine. These are your expenses, not mine. If you think Iím wrong about all this, I would sure love to hear your reasoning.
Try to understand what Iím telling you here. Those people that Obama and the Democrats call ďwealthy AmericansĒ are, in very large part, Americaís small business owners. Iím one of them. You have the evidence, and surely you donít think that the owner of a bunch of tire stores is anything special. That $534,000 figure on my income tax return puts me squarely in Democrat crosshairs when it comes to tax increases.
Letís be clear about this Ö crystal clear. Any federal tax increase on me is going to cost you money, not me. Any new taxes on Carrington Automotive will be new taxes that you, or the people I donít hire to staff the new stores I wonít be building, will be paying. Do you understand what Iím telling you? Youíve heard about things rolling downhill, right? Fine .. then you need to know that taxes, like that other stuff, roll downhill. Now you and I may understand that you are not among those that the Democrats call ďwealthy Americans,Ē but when this ďtax the richĒ thing comes down you are going to be standing at the bottom of the mud slide, if you get my drift. Thatís life in the big city, my friends Ö where elections have consequences.
You know our economy is very weak right now. Iíve pledged to get us through this without layoffs or cuts in your wages and benefits. Itís too bad the politicians canít get us through this without attacking our profits. To insure our survival I have to take a substantial portion of that $534,000 and set it aside for unexpected expenses and a worsening economy. Trouble is, the government is eyeing that money too Ö and they have the guns. If they want it, they can take it.
I donít want to make this too long. Thereís a great lunch waiting for us all. But you need to understand whatís happening here. Iíve worked hard for 23 years to create this business. There were many years where I couldnít take a penny in income because every dollar was being dedicated to expanding the business. There were tough times when it took every dollar of revenues to replenish our inventory and cover your paychecks. During those times I earned nothing. If you want to see those tax returns, just let me know.
OK .. I know Iím repeating myself here. I donít hire stupid people, and you are probably getting it now. So let me just ramble for a few more minutes.
Most Americans donít realize that when the Democrats talk about raising taxes on people making more than $250 thousand a year, theyíre talking about raising taxes on small businesses. The U.S. Treasury Department says that six out of every ten individuals in this country with incomes of more than $280,000 are actually small business owners. About one-half of the income in this country that would be subject to these increased taxes is from small businesses like ours. Depending on how many of these wonderful new taxes the Democrats manage to pass, this company could see its tax burden increase by as much as $60,000. Perhaps more.
I know a lot of you voted for President Obama. A lot of you voted for Democrats across the board. Whether you voted out of support for some specific policies, or because you liked his slogans, you need to learn one very valuable lesson from this election. Elections have consequences. You might have thought it would be cool to have a president who looks like you; or a president who is young, has a buff bod, and speaks eloquently when thereís a teleprompter in the neighborhood. Maybe you liked his promises to tax the rich. Maybe you believed his promise not to raise taxes on people earning less than a certain amount. Maybe you actually bought into his promise to cut taxes on millions of Americans who actually donít pay income taxes in the first place. Whatever the reason .. your vote had consequences; and here they are.
Bottom line? Iím not taking this hit alone. As soon as the Democrats manage to get their tax increases on the books, Iím going to take steps to make sure that my family isnít affected. When you own the business, that is what youíre allowed to do. I built this business over a period of 23 years, and Iím not going to see my family suffer because we have a president and a congress who think that wealth is distributed rather than earned. Any additional taxes, of whatever description, that President Obama and the Democrats inflict on this business will come straight out of any funds I have set aside for expansion or pay and benefit increases. Any plans I might have had to hire additional employees for new stores will be put aside. Any plans for raises for the people I now have working for me will be shelved. Year-end bonuses might well be eliminated. That may sound rough, but thatís the reality.
Youíre going to continue to hear a lot of anti-wealth rhetoric out there from the media and from the left. You can chose to believe what you wish .. .but when it comes to Carrington Automotive you will know the truth. The books are open to any of you at any time. I have nothing to hide. I would hope that other small business owners out there would hold meetings like this one, but I know it wonít happen that often. This hasnít been about admonishing anyone and it hasnít been about issuing threats. This is part of the education you should have received in the government schools, but didnít. Class is now dismissed.
(Clint again) There you have it. It's natural to think somebody else is going to pay for this fiscal fiasco our government has created. That somebody else is you and me. It is impossible to even equate the federal deficit with real world examples so you can understand how much money is owed. We will never pay it back in our lifetimes. Our children and their children will never pay it back in their lifetimes.
I've spoken to other small business owners who have simply stated they have no reason to work any harder this year. The more they make, the more they're taxed. Why invest blood, sweat, and tears when the government has removed all incentive to do so?
If you own a real estate note and are thinking about selling it, now may be the time. One thing is for certain: Taxes will not be going DOWN as long as the current administration is in office. Now may be the best time to realize the cash you need without giving the majority of it back to the government in the form of new and higher taxes. Call us today and let us provide you with some options.
Make it a great week.
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