President Blows Off Business Owner’s Tax Question

Yesterday President Obama held a town hall, answering questions submitted over the Internet, and from people in the audience.

obamanomics-sophestry

One man in the audience asked:

Today my question is, as a small-business owner, my company is still profitable.  We’re still growing, we’re still hiring.  The money that I make as a profit, I’m plowing right back in, and even the money that I pay to the bank for my business loans.  Yet under current tax laws, all of that counts as income to me before I ever see a penny of it.

Sir, could you please help small businesses by allowing, some way, somehow, money we pay to the bank in principal to not count against our income, and put us in the “richest” before we’ve ever seen a dime, and allow us to invest in this huge engine to drive economic recovery?

The President betrayed his ignorance of tax law and of small business operations by answering:

Obviously, I’m not completely familiar with your circumstances or your tax status.  But we want to do everything we can to relieve the tax burden on startups and small businesses, and as they grow, then their tax burden is going to grow accordingly.  So one of the things that we have already proposed and is reflected in our budget is that we are eliminating capital gains taxes for small businesses.  That’s something that we’ve already proposed and put in place.

Anyone who has done the tax return for a small business knows that answering the question does not require knowledge of the man’s individual circumstances.  The question was carefully phrased to be general, and to apply to all businesses. 

For those who are not familiar, a business owner is taxed on his/her profits – business revenue minus business expenses.  IRS rules specify which expenses are allowed.  In the case of loans, interest is an allowed  business expense, but repayment of principal is not.  So the owner’s taxable profit increases by the amount the loan principal was reduced, and he/she pays personal income tax on that amount just as if he/she had used the money for personal/family expenditures.

Is this “fair?”  It’s an old debate and there are arguments both for and against this treatment of loan principal reduction.  The point is this President, who proposes to increase taxes on small businesses, and who talks a lot about small businesses, should at least have known what the question was about, and should have known if he thought tax treatment of principal reduction should be changed.

The President went on to try to snow the audience by shifting to his proposed zero tax on capital gains a business owner realizes if he sells his business, at least five years in the future.  That may be beneficial but it has nothing to do with the question he was asked.

The Bottom Line

The President is determined to increase income tax rates on small businesses with more $200,000 in annual profits.  He calls these businesses “rich” and says it won’t matter to the economy or to the rate of employment if their taxes go up.  But, in blowing off this question President Obama exposed his ignorance of the basics of the tax code, and demonstrated that he’s not qualified to continue making value judgments about which businesses should suffer a tax hit.


2 Comments so far

  1. Sarah Livingston on March 27th, 2009

    I’ve been trying to get a small business going for two years. It’s very difficult. It requires taking a lot of risk and a lot of hard work. Sometimes I work until midnight.

    It makes me angry when I think about Obama’s attitude toward people who have done all this work and taken all this risk and finally acheived some success and hired some people who needed jobs. Obama thinks small businesses exist just to be cash cows for his socialist ideas.

    I didn’t know how hard it would be before I started. Obama has never been in business. All he did was community organizing in Chicago. I live in Chicago and I saw what they did. Community organizing means he led a bunch of ignorant, lazy slobs on protest demonstrations to get more taxpayer money for themselves.

    How could this country be so stupid to elect this dishonest man?

  2. aaa again on March 29th, 2009

    Sarah –

    All of us who live in Chicago knew who this guy was. After all, Emil Jones is his self professed “political godfather.” And I’m amazed (disgusted, really) that the press never thought to really vet this guy. It was one of the most shameless and unethical periods in “journalism’s” history.

    And now we have “internet town hall meetings” where questions like the subject of this blog can be easily dodged.

    A pathetic state of political affairs.