My point is that the 10% bracket people are on a tax system that resembles a franchise tax at 10%, whereas the bulk of the corp tax is levied against the profits. Now given 95% expenditure/5% profit example company that we have been discussing, would you prefer to have a 10% franchise tax or a 50% corp tax (assuming that you only needed to pay one of them)?

Let’s run the numbers:
A $1 million revenue company would be charged $100k for 10% franchise tax, regardless of how much it spends. If it only makes $50k profit, then it’s bankrupt. However if it only has to pay a 50% corp tax, its tax is only $25k.
So in this scenario it would be foolish to want to be taxed like a person in the 10% tax bracket.

Also, a take home of $30k isn’t necessarily the only money you can get. Don’t forget that part of the 95% expenditure can be capitol investment. Meaning that you could direct extra profit (money you don’t need to live on) could be reinvested into your company in ways that increases your net worth without you having to pay corp taxes on it. Then if you decide to sell shares of your company, you’re able to recoup those deferred profits and only pay long term capitol gains taxes (15%-20%) on them.

The problem I have with your post in general is that there are a lot of half-truths that appear to support your case until all the facts are revealed. For instance, although 40% of income earning American’s don’t pay income tax, does that mean that they don’t work? If they don’t, please let me know how I can be an “income earner”, not pay taxes, and not work, because I want to be in on that gig. Hell, I’ll take 10 of those jobs. In reality, many income earners work, but still don’t make enough to qualify for paying taxes (i.e they are below the poverty line) while others take advantage of the tax system so they can claim no tax liability. So in this regard, it seems like a knee-jerk reaction to say that you want those 40% of americans to pay more taxes. Certainly, I don’t think you are advocating that those who are really in poverty should pay more tax. I think what you want is a reform of the tax code that prevents people who are not in poverty from claiming that they are.

The next half-truth is that you claim the $1000 check for non-tax payers amounts to wellfare. While you are partially right you neglected to mention that this is a Child Tax Credit. So is giving working low-income families with children welfare a bad idea? It depends on your goals. If your goal is to keep them out of poverty, then its a bad idea, but if your goal is to get people to spend it, then I can’t think of any better group that is more likely to spend it. Since this is a stimulus package, then it makes sense to give money to those that will produce the most stimulus. Weren’t you the one saying that government should do what makes them the most revenue even if that means lowering capitol gains taxes? Why are you now against giving money to those that will cause the most stimulus even if it means people who don’t pay taxes get money? Doesn’t this sound hypocritical to you? Secondly, the stimulus is not a redistribution of wealth (you didn’t say it was, but some commenters are), it is in fact a loan, to be paid off by future tax payers. Some of the poor today may be paying for it in the future. Some of the rich today may be poor tomorrow and avoid paying. Then again, it all depends on future tax laws so maybe the conservatives will take over and make the poor pay for all of it, thus no redistribution of wealth.

Also the whole talk about Warren Buffet income being double-taxed is yet another half-truth. Ironically, the second paragraph of the “Arguments in favor” section of the wikipedia link you provided sheds light on the fact that “the same cash stream is often taxed any time it exchanges hands in many other instances”. Essentially, since everyone is multi-taxed if you think about it, it seems arbitrary that you would single out the dividend tax for double taxation, but exclude all other forms of multi-taxation that the secretary might pay. In the end, the only reasonable way of comparing income taxes are to consider taxes that are applied to your actual income and not the taxes that a company paid at some point before you could be paid.

If HostGator was a Corp, and you were the sole owner, then yes, it would seem that you would be double taxed, but that is only because you are not creating a distinction between your company profits and your income. By making a Corp, you are declaring that you and the company are two separate entities (which is why you get the liability benefits). In this way, the corp is taxed once and when you get your dividends, you get taxed once.

For the record, I’m not a fan of our tax system either. Given the choice, though we would probably fix it in completely opposite ways. :)

-Rent
Writing off rent only really benefits a company when you are a very small operation working from your home. You aren’t allowed to write off all your rent only the portion of your home / apartment used as “office space”. When we were a smaller operation I was able to write off about $100 a month of my rent. Now that we have an office building I no longer write off any of my home expenses. Back in the day I was very far from being in the top tax bracket. I don’t believe there are many businesses working from their bedroom in the top tax bracket.

Food- This is definitely the biggest perk when it comes to write offs when you are smaller. Now a days when we go out to dinner the cost far exceeds the benefit of the write off. When we go out as the owner I usually endup paying for everyone’s dinner. The people that benefit off this the most is my employees not me. The majority of people don’t really understand what a write off is….

If I get to write off $100 due to a business dinner that does not mean I’m $100 Richer. It actually means I’m $100 poorer since it was spent on dinner and my employees. Essentially all the write off means is that I no longer owe $35 dollars in tax on that $100 I would profited had it not been spent on dinner.

-Utilies? I don’t remember taking advantage of this, but if I had it would have only ended up saving probably $30 a month in electricity at most in the form of a writeoff.

-Medical expenses? Medical expense write offs benefits the employees far more then it does the employer. We are spending a few hundred thousand a year on providing medical benefits. I don’t have to spend about $70,000 in taxes on that $200,000, but I no longer have a single penny from that $200,000. It was spent on the employees. If we didn’t have medical benefits I would be $200,000 richer a year. ($130,000 after taxes) It would be craziness if I had to pay taxes on money that I never received.

What happens if corps spend 95% on “expenses”? -> They pay 2.5% in taxes and keep the rest.

There isn’t much to keep if they spent it on expenses.

If a company made 1 million dollars but 95% was expenses that means they profited 5% which is $50,000. Now if they are in Texas they have to pay a 1% franchise tax which results in that $50,000 profit becoming $40,000. That $40,000 is now taxable at a 25% rate federally which means they just lost another $10,000.

This translates into the owner of the million dollar business taking home $30,000 to live on a year when all said and done.

I’m not a fan of our tax system! I can guarantee the amount of money I lose paying our accounting firm to prepare our taxes along with our in house accountant far exceeds the amount of any “write offs” I could ever profit from.

I’m a huge Ron Paul supporter and his beliefs on taxes. Anyone reading this comment, I highly recommend you watch the Obama Deception.

What he is not telling you, is that if you have enough money, you can work the system in your favor. What’s the secret? Deductions!!! That’s what I do, cuz I have money. When I started working, I was single, rented an apt, had no children, no tax-deferred ret. fund, and making no where near what I make today. Fast forward to today, and guess what, I’m not only paying a lower % rate than before, I’m actually paying a lower $ amount. I also pay a highly trained tax guy to do my taxes and find all imaginable ways to let me pay even less tax. And on top of all that, his fees are, guess what,…TAX DEDUCTIBLE!

Now lets talk about Corp tax. You see corps only get taxed on profit. That means after all the bills, the rent, employees, etc are paid first, then whatever’s remaining gets taxed @ 50%. So at the end of the day if your company has enough to pay its employees, enough pay for the costs of running the business, enough to pay for reinvestments in the company and you’re still left with cash left over you get taxed a high rate. Does it hurt your company? No. Does it hurt your stock holders looking for a fat dividend, yes.

Now lets compare this to poor people income tax.
Do they get to write off their:
-Rent? No.
-Food? No.
-Utilies? No.
-Medical expenses? Not, unless the spend a certain % of their income, and know how to file their taxes correctly to get that benefit.

What happens if the people in the 10% bracket spend 95% on food/shelter/clothing? -> They get to owe the government money.
What happens if corps spend 95% on “expenses”? -> They pay 2.5% in taxes and keep the rest.

Now lets talk about sales taxes. Suppose you spend 100% of your money on taxable items, what is your effective tax rate? Now suppose you spend only 10% of your income, what is your effective tax rate then? Now if you’re making enough to be in the 35% tax bracket (and you’re not an idiot) most likely you will be putting most of your money into “investments” that make you more money and not spending it all.

Now how much do you suppose is being spent on taxable items? How would you spend if you had the income of someone in the 10% tax bracket? You’d probably be spending much more and “investing” much less, than the 35% tax bracket guy?

To have a truly “fair” tax, we would have to either eliminate many of the deductions we have today, or somehow access what a real cost of living should be such that we can accurately assess an individual’s “profit”, like we do for businesses. Ironically, nobody who advocates a “fair tax” ever brings this point up.

Sorry for such a long rant, but there are a lot of people claiming they want a “fair tax” when in fact it is just conservative propaganda. I’m not saying that Mr. Oxley is in any way purposefully trying to mislead people. I believe he is a honest, respectable person, running a honest, respectable company. I’m more inclined to think that this propaganda is highly effective at stirring people up into the conservative way of thinking. And it is easy to see how it works, when people cherry-pick the data, make apple to oranges comparisions, and gloss over important details.

Lastly, I think the conservative movement is simply an awesome propaganda machine. I would never have imagined that it could convince hard working poor people that poor people need to pay more taxes because the poor are deadbeats. That the “high” taxes on the rich is unfair to the rich. With such skill you’d expect them to run for President, wait… they did!

Keep up the good work. So far I am very pleased with the product you provide and the service you provide along with it.

Thanks!

Sorry to hear you lost Brent, now I will just stay as a customer to remind you that Obama is the Mr President! And where is that new site template for Obama supporters?

I’m not sure if Brent is overly worried about losing accounts, I think Republicans are typically the business owners who provide the real volume and longer lasting business relationships with host gator anyways.

I don’t think Brent needs to prove anything to his employees. Right now, he is overstaffed sometimes according to a previous post. His Obama loving employees will quickly realize the downfall of the Obama rape-the-business-owner plan when Host Gator, and Brents personal taxes skyrocket and he has to lay off a few employees.