Corporate Tax Rate Impact on Small Business Owners

The sale of garden seeds and vegetable plants has exploded at Rick's Garden Center. Owner Mike Estes says the slumping economy means more folks are growing their own gardens to save on their grocery bill.
Mike's also looking at his own bottom line these days. He describes himself as "Joe the Gardener"... The independent small business owner ... And Luisa Graff... owner of Luisa Graff Jewelers says she too fits that same description.
Both have been in business 20-plus years... putting to work anywhere from 15 to 20 people.
They're studying components of both Senator Barack Obama and Senator John McCain's plans... specifically the corporate tax rate.
The Walll Street Journal found under an Obama administration... the small business owner would have to pay more... seeing the rate go from 35 percent... to almost 40 percent.
McCain's proprosal calls for the rate to drop from 35 to 25 percent. Mike Estes says, "They have to make it condusive for the small business, not only just to survive, but to thrive... to be able to give those bonuses, incentives, raises to the employees."
Here's what it looks like using the Wall Street Journal's figures for the corporate tax rate.
For someone making 250-thousand dollars a year... they'd pay 100-thousand dollars to Uncle Sam under Obama and $62,500 under McCain.
After owners repay their original capital... their business loans of $125,000.... they're putting in their pocket $25,000 under Obama's plan... And $62,500 under McCain's plan.
Both Estes and Graff say McCain's plan would let them pocket around $50,000 for themselves and use the leftover $12,500. to re invest in their companies."
Graff adds, "With less taxes you can invest more in your business and you can pay the loans know with after the tax money... so you grow the buisness and you create jobs."
I called Obama's national campaign headquarters several times today to get more on Obama's plan... specifically rebates and other measures impacting small business owners, but no one returned my calls.
His website does mention his goal to eliminate special interest loopholes and deductions.

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  • by Terry Boult Location: UCCS on Oct 22, 2008 at 10:52 AM
    I saw this last night and was shocked. I expect better from my freshman class let alone from KKTV. The analysis presented is incorrect. Taxes are on "NET income", not gross. Loan payments and salaries and most non-capital "investments in the company" are deducted before taxes are applied. So the higher rates of the Obahma plan would not be applied to the 250,000, but to the NET after subtracting the costs. If you subtract the 125,000 loan payments, 50,000 in salaries and 12,500 in other investments (e.g. marketing, business space, sales help, etc) then the tax would be applied to the NET Income $62,500. The actual tax rate depends on the form of the company, but if you do the models correctly, I believe each form this small business "example" fares better under Obama's tax plan. For a "pass-through company", the owner would pay tax on $112,000 (the $62,000 Net profit $50,000 salary). Overall saving $1000 under Obama or $100 under McCain.
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