It seems by the time you’re a majority leader, you’d understand how this works. I hate to call anyone a liar, and I even hesitate to call someone willfully ignorant, so I’ll settle for being mystified that the majority leader of the State Senate doesn’t get how an upper income tax increase affects a small business owner who takes profit as personal income, and thereby pays income taxes on profits through the personal income tax.
It’s really not that complicated. If you take the profit as income, meaning you stuck the profit into your pocket and took it home, you pay income tax on it. If you put the profit back into the business, it isn’t personal income, and you don’t pay tax on it. So if the profit is $100,000, and you buy a $40,000 machine and take the remaining $60,000 for yourself, you pay income tax on $60,000, not $100,000.
Yet Sen. Koch seems not to get that the money put back into the business isn’t taxed, judging from what she said on Midday yesterday. Talking about her sister, who owns a business and takes profits as personal income, she said sometimes her sister took no pay (by the way Senator, that means she wasn’t subject to the income tax) and,
She will be impacted by this. It will affect her bottom line, and instead of having her expand, create new business and hire new people, the tax increases will be harmful for that.
[this is about 42 minutes in]
No, the tax increase won’t be harmful for that. If her sister expands the business, she reduces her taxable income. There’s actually an incentive increase investment: put the money back in the business, and it doesn’t get taxed.
I don’t blame most of the public for not getting this when political leaders keep handing out misinformation. It seems intuitive that if business owners pay more taxes, they’ll hire fewer people, so Republicans play on that, and don’t tell people that businesses actually avoid taxes if they invest. Legislators, however, are supposed to understand this stuff, and even if they don’t to begin with, it has been explained over and over again to them during the debate.