Wednesday, November 05, 2008

An Open Letter to John Galt 
All this talk about "going John Galt" is harmful to the economy and self-destructive to business owners and producers.

Other than some elements of estate tax threshold issues (which are usually pretty easily addressed with some planning and discussed here) there are very few business or investment decisions that make sense at a marginal income tax rate of 36% that don't make sense at a marginal income tax rate of 38%. And if you think your powers of prediction are so good that you can cut margins that close, you're deluding yourself.

Meanwhile, if you're productive - if you've demonstrated an ability to leverage the efforts of other people to profitable enterprise, and you go John Galt in a fit of pique, you will have abandoned your country when they need you most (during a recession.)

Further, you will have effectively permanently disinherited your heirs, in a sense, by destroying a family business that could otherwise have been sold or passed on to the next generation - and probably at a higher price than today, since in the aggregate, most businesses can fetch a higher price in good economies than weak ones.

If you were going to retire anyway, then retire. (But understand that the last time liberals had free reign over the economy, unfettered by a Republican legislature for more than a few years at a time) we had rampant inflation as a byproduct of Keynesian economics and Johnson's guns and butter policies.

If inflation kicks up, you will probably need that business generating revenue to supplement your savings. ESPECIALLY if you retire early.

Don't punt it away in a fit of pique.

And don't take it out on your employees out of spite. Even the libtard ones. Even the ridiculously stupid and uneducated ones.

You well understand, they know not what they do.

A few of them are grateful for the job, and a lot of them appreciate what you do and admire you for it.

Maybe not out loud, and maybe not publicly. Nobody wants to be a suck up.

But they're in your business and a lot of them bust their butts in ways you might not even know about to keep your business afloat and they have for years.

This is NOT the time for Atlas to shrug.

Keep hope alive.

And keep your congressman nervous.

Splash, out


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... and John Galt's reasons for quitting INCLUDED the very reasons you demand people stay. :)

I'm a small business owner. It's not about whether or not I want to take my anger out on people. It's about whether or not i think the risk is worth the reward, and whether I think I'm getting a fair value for my effort.
The point you've missed is that the people threatening to go John Galt are all pundits of the sort who threaten to go John Galt. Or have I missed some steel and railroad magnates?
I'm not a steel magnate, but I'm in construction, specifically in the steel industry. We build factories. We employ around 200 people. If future tax laws make it financially risky for us to continue business, are we supposed to keep running until we bankrupt out of social responsibility? If we do, why is our labor considered an obligation to the state for redistribution to others? Why is our property considered expendable to the will of the people? If I pushed that on any employee they'd walk out the door. At what point is it ok to say "I won't do this job for this cost?" Union workers do it all the time. If they go on strike every time there's a contract negotiation, why is it wrong for an owner to say "I just don't think it's worth it if the government is going to take my money and give it to someone else?"

Margins are already razor thin. Much thinner and it really isn't profitable to continue. Why should I take all the risk, not be rewarded, and be responsible for the livelihood of 200 other people? That's a lot to put on someone when I could easily work for someone else, maybe make less, but have no risk and less responsibility.

I don't know any pundits, but I know a few plant managers and small business owners who are thinking that way whether they read Ayn Rand or not.
Margins have nothing to do with it. The lower your margin, the lower your income tax liability anyway...and the thinner the margin, the more trivial the dollar amounts we're talking about.

At any rate, if a top marginal tax bracket of 38% v. 36% is going to be the difference between profitability and unprofitability for you, then I suggest the tax code is the least of your problems.

Maybe it's your fixed plant costs. Maybe it's sticky labor costs. Maybe it's inefficient project management, or sloppy materials planning. Improving any one of these could well unlock much more revenue than a two-point move in the top tax bracket.

Further, it is possible that a decrease in a lower bracket could cancel out an increase in the top bracket, meaning no net increase in total tax liability at a given income level.

Third, I'm assuming you're going to still want health coverage. As a business owner, you get to deduct the full amount of your health premium. Step down, and you only get to deduct medical expenses to the extent they exceed 7.5% of your gross income.

So you're already getting a subsidy there.

The tax issue is getting blown way WAY out of proportion.

Use your head, and look at the picture rationally.

Hell, if your company is doing fairly well, and you're making the kind of income someone who employs 200 people can make, most of the time, you may well have a nice AMT break coming.

At any rate, you also have a number of other options and ways to shelter income from taxation, or at least gain some significant advantages, via deferred compensation planning, etc.

Ve haf vays.
Added: Now if Obama wants to increase taxes on DIVIDENDS, or double tax them at the personal level, rather than just treating S-Corps as pure pass through entities, he can really gum up the works, and give every owner a 35% pay cut right off the bat.

I haven't seen anyone arguing for this, though.

Obama has proposed increasing the tax rate on dividends from 15% to 20% on people making over $250K (or was that $200K? $150K? $120K?...)
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