Who Makes $250,000 a Year? Not Small Business Owners

Filed in Gather Money Essential by on September 19, 2008 0 Comments

 

With all the hype from the McCain camp that Obama’s tax plan will hurt small business owners, I went and actually looked up the math.  I know.  I know.  HOW DARE I actually try to bring facts into the equation.  The nerve of me!

McCain Theory:  Small Business owners create the majority of the jobs in this country.  Obama’s tax plan to raise taxes on people earning over $250,000 hurts small business.  Therefore, people making over $250,000 a year deserve more tax breaks in order to encourage businesses to create more jobs.

See the breakdown of the tax plans

The McCain theory makes two assumptions:

*Assumption One is that the people who earn $250,000 are in fact small business owners. 

*Assumption Two is that, if they are paying lower taxes on their personal income, they will hire more people in their business.

First, we need to determine if the First Assumption is valid.  And before we do that, we need to define what qualifies as a small business.  According to the Small Business Bureau, a small business is an independent business with fewer than 500 employees.  By “independent” we mean sole proprietorship or limited partnership.  Corporations are not included in this definition.  This is when I realized how damn hard it is to find solid data that wasn’t corrupted by spin from either side.  I ruled out data from blogs, or anything that seemed to be a special interest group.  So I started with the career sites to see what they were reporting.

Payscale.com-The average small business owner reports a yearly salary of between $36,000 and $75,000 a year.

Careerbuilder.com-Reports the average Small business owner salary is $36,266

Of course, these sites depend on user imput, so it may not be accurate.  So I went to the government sites.

Bureau of Labor Statistics

This is a cumbersome report, but I encourage you to read it anyway.  Not one category is showing an average income of over $250,000 a year.  Doctors, lawyers, engineers, and sales managers show an average in range of $100,000-$150,000, but not near $250,000.

FINALLY, digging around the U.S. Census site.  The 2007 report of income by source of income!

The report shows number of individuals reporting a type of income (keep in mind, the number is in thousands.  Don’t read it as is), and my median income.  Almost 12.5 million people filed self-employment income (only looking at non-farm income, as farming has its own set of subsidies and tax laws different from other businesses).  The average amount of self-employment income reported per taxpayer is $31,246

That is the number we are looking for, because the majority of small business owners that file report self-employment income.    So it appears that the average income of a small business owner is well below $250,000.

So First Assumption is broken.  The Obama plan will NOT hurt the typical small business owner.

Now let’s look at the Second Assumption.  Will giving tax breaks to people making over $250,000 a year encourage them to create more jobs?  This assumption assumes these individuals are making their money in fields that would in fact lead to job creation.  According to U.S. Census reports 1,324,000 reported incomes above $250,000. 

So who are these 1,324,000 people?

Again, it’s hard to narrow it down.  Most of the statistical charts deal in median income, which means it throws out the top and bottom wages to calculate the average.  So perhaps we have to go with our collective knowledge.  What groups can we identify, off the top of our heads, that earn $250,000 a year?

Entertainers and Athletes.  These guys are pulling down millions (OK, not the D-list actors, but you know what I mean).  Does giving them a tax break generate more jobs?  Does reducing their tax bill by, on average, $15,000 a year, create a new job?  Or does it buy another Rolex?  Or, on the other side, does increases their taxes by, on average, $23,000, destroy an existing job?  They might have to fire their housekeeper or gardener…no, that would mean they would clean their own houses or mow their own yards.    Besides, most of the Hollywood types are supporting Obama anyway, so obviously they aren’t concerned about the $23,000.

Corporate CEOs.  Not the guy who incorporates his business and gives himself the title to sound important.  We’re talking about the big boys from the big corporations.  These are the guys running those big banks, mortgage lenders, investment firms, and such that the taxpayers are currently bailing out to the tune of billions of dollars.  These are the guys that make the decisions to move jobs overseas, close plants, and fight giving employees a living wage.  Will putting an extra $15,000 on average in their pockets suddenly inspire them to move jobs out of China and back to the U.S.?  Or will increasing their taxes on average $23,000 help offset some of the economic problems their lack of forethought caused?

Health Care professionals and attorneys.  While the median doctor income is around $150,000, some earn hundreds of thousands of dollars.  Now don’t get me wrong, I respect the work these folks do and believe they earn that money.  But will giving them a $15,000 tax break create a new job? 

Marketing/Sales professionals.  Though the median income for these folks is around $90,000, those that work for the major firms can pull down MILLIONS!  Of course, their income depends on the average American being able to afford to buy the stuff they are marketing.  When the economy bottoms out, these guys stand to lose a lot.  So will giving them a $15,000 tax credit save their jobs?  Or would increasing their tax by $23,000 in order to provide a tax credit to the middle class actually help them make MORE money, because the average American would have more disposable income to spend on Xboxes, clothes, and cars?

Investment Brokers and Speculators.  Have you seen the chaos on Wall Street lately?  Would giving them a $15,000 tax credit fix the problem?  Enough said.

The Wealthy.  The folks who come from “Old Money.”  Those that inherited money from their families.  The select few like Bill Gates that pulled themselves up and launched their own empires.  Will giving any of them a tax credit inspire them to do anything they aren’t already doing?  The wealthy that already give back to the community will continue to do so.  The wealthy that do not will continue not to.  A tax break is not going to change the behavior of either group.  Neither is a tax increase.

In short, Obama’s tax plan does NOT hurt small business owners.  In many cases, it would benefit small business owners directly and indirectly.  The typical small business owner would qualify under the Obama tax credits, and the millions of other Americans that get the credit would have more disposable income to spend at their businesses.

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