72° Good Afternoon
72° Good Afternoon

Dawidziak: For business, $250G ain't rich

As the argument raged in recent weeks over whether to let the Bush tax cuts expire or continue, few words were used as pejoratively as the term "wealthy."

Republicans and Democrats were passionately split over the fate of the cuts - which will almost certainly be preserved after a compromise announced this week. Their extension will have far-reaching effects not only on our country's immediate future but also the country that our children and grandchildren will inhabit.

So it's unfortunate that the debate often descended to the level of the 10-second sound bite, mostly drawing on class warfare rhetoric. These types of justifications are political posturing and the result, if not the intent, is to divide the country at a time when unity of purpose is demanded.

President Barack Obama campaigned on the promise to let tax cuts for "the rich" expire, saying that he would hold the line on tax increases for those making under $250,000. Last week the House of Representatives passed a bill going nowhere that would have done just that: allowed the Bush-era cuts to sunset for those above that arbitrary income level, while extending the cuts for those below.

But drawing the line at $250,000 would have had debilitating effects on small businesses. Almost everybody, from the president on down, has expressed the belief that small businesses will lead the way in job creation and out of our financial morass. This is especially true here on Long Island, where nine out of 10 companies employ fewer than 20 people.

To most people, a salary of $250,000 sounds like a lot of money. It probably would be if the small business owner actually got to keep all the money, but it rarely works out that way. Many small business owners don't draw salaries. They get what's left over at the end of the year. Unlike elected officials and government workers, their pay isn't guaranteed by the taxpayers. How much they make every year is directly attributable to their own skill, fate and the performance of their company. This type of risk-taking entrepreneurship is necessary if we're going to have people who actually create private-sector jobs.

So let's take a look at what a $250,000 profit means for a small business on Long Island. It would either be declared as income on a corporate tax return or as salary on the owner's personal return. First, comes the double bang of Social Security: As employer and employee, the small business owner gets the privilege of paying both halves of this contribution. Next comes federal and state taxes. Then add in the MTA payroll tax.

A minimum of 40 percent - or $100,000 of the profit - goes to taxes right off the bat, taking it down to $150,000.

That's a good income even when you take into account the high cost of living on Long Island; it's not exorbitant, but it's still a lot of money after taxes . . . if you actually got to keep it. But most small business owners don't. They turn around and invest most of that money right back into their companies to pay for salaries and operating expenses. The only other option is to cut overhead - and that usually means jobs.

Most small business owners don't mind paying their fair share of taxes - maybe even a little more. But if you ask them, you'll hear that they do have a problem with being called "wealthy," when what they're really doing is struggling to keep their companies open and their employees working.


We're revamping our Comments section. Learn more and share your input.