Why higher business taxes can be a good thing
Where did we get the notion that only lower taxes will stimulate companies to spend money?
Section 179 of the 2016 tax code allows a small business owner like me to buy equipment and deduct the full value from my gross income. That means if I buy a $30,000 truck and pay 33 percent in tax (income and self-employment), the truck is actually costing me $20,000.
Basically, I’m taking $10,000 that I would have paid in taxes and putting it toward my purchase. Section 179 is intended to get people like me to invest in our business; to buy things and thus spur the economy.
Does it work? Well…I don’t really need a new truck, but of course, I’m buying one anyway. I bought one last year, too. And now with another truck, I can easily add another crew. So yes, I’d say it does work.
What’s funny is this: Investing in my business has always been a tax deduction. I have never paid tax on a business expense. Everything I’ve ever bought for the company (including labor) has lessened my taxable income. When I have a bad year, I can’t afford to buy tools, and my tax bill is low, reflecting my low gross income. And when I have a great year, I buy everything I can (including labor) because it lowers my tax bill.
So that leads me to: Where did we get the notion that only lower taxes will stimulate a business to spend money? For me and people like me, it’s actually the opposite. The higher the taxes, the more likely I am to buy things – and that spending spree is what everyone means by “stimulate the economy.”
I always want my business to show the smallest profit possible since only my profit is taxed. I hire people, I buy things and I invest in my infrastructure, all to reduce my gross taxable income. My personal income, on the other hand, is just that: personal. Buying a Ferrari does nothing for my business. Lesser tax on my personal income has nothing to do with how I invest in my business. I don’t hire anyone with my personal money.
So the truth is that higher business taxes cause me to invest in my business and lower business taxes let me keep more personal money, which I then hoard or spend on myself. There isn’t anything the company really needs, so why spend it on the business when I can upgrade to the genuine panda-leather seats for my Ferrari?
I’m not here to say that I want higher taxes, because I don’t. What I’m saying is that if we as a country want to use taxes to affect economic output (and both parties do), then for Alpine Fence, the strategy that reduces our tax rate won’t work.
The only tax policy that will induce my business to ‘buy today’ is one that has reasonable-to-high tax rates and Section 179-type full depreciation incentives to purchase equipment and invest in growth.
For more information on the 179 Deduction, see the official website. http://www.section179.org/section_179_deduction.html