Straight Talk on Obama's Tax Plan and Small Business

By Eric Winchester Stein

This appeared as a guest column in the Delco Times on October 26, 2008

Because `Joe" is not licensed, has no capital to buy a business (he owes over $1000 in back taxes) and makes only $40,000, his situation is not representative of small business. As an individual, he would receive a tax break under the Obama plan. So let's forget about Joe and talk about a real small business.

Small businesses that want to simplify their bookkeeping can elect to file taxes using an individual tax form. Schedule C provides a place for a business to declare revenues and expenses. Expenses include everything from telephone and other utilities to uniforms, legal advice and the use of trucks, cars, and computers. Expenses are deducted from revenues to calculate profits. Taxes are then paid on profits.

The Obama plan clearly states that taxes are paid on profits not gross revenues (see http://taxcut.barackobama.com/sb_faq.html).

Typical businesses have a profit margin of about 15-25%. Therefore, a small business would have to earn over $1,000,000 to see any effect of the Obama's plan. The ones that do would pay a few percentage points higher. Very few small businesses earn over one million dollars and certainly not the one suggested by Joe.

So let's get real: Obama's plan is good for middle class people and small business that earn under a million dollars in gross revenues.