Whatever salient points you attempt in the body of this piece are completely undermined by the weirdly bitchy snipes at Krugman.
And the point of that is ...?

MK, typically love your work, but the weird Krugman joke was undecipherable.

Small businesses are businesses like any other, and small business owners are people just like others-except that they tend to be wealthier. Why should the magic words "small business" entitle them to pay lower taxes?

The answer- they take risk. They risk their own money to start a business, and if it fails, it is their money that goes down the drain. The gov't isn't there to bail them out.

That is why their taxes should be lower. they hire people and create new jobs. We need small business in this country.

I loved your Krugman comment. As a small business ownere I never paid 50% of my required taxes and always paid the 100%. I suppose as you put it most of us are in business in some way or another. We might own a piece of a business and not have any required participation. Then you have small businesses that require complete participation from the owner. With the perks and expenses the owner can deduct he is given enough opportunity to avoid paying taxes. Once he gets to the bottom line he's really only paying a portion of his real earnings.

Like you I believe we should all be responsible for paying taxes. I think cutting taxes is totally irresponsible considering the condition of our country. I do not believe that any stimulus package is of any value to the public as it depletes and weakens our economic state.

I do believe there are better ways to "fix" our economy. I have an idea that could work.

Enough said.

Mike Doran

Years ago George McGovern bought a piece of a New England resort and experienced first hand all that was involved with a small business. After the experience, which ended not so well, he said he wished he'd known years before more about what it was like to be a small business owner; it would have made him a better Senator. May we assume you've never started or owned a small business ?

Government mandates from tax collecting to immigration patrol to insurance providing to pension providing to tax paying, etc. ( you know what I mean if you've ever owned a small business ) are onerous and expensive and ruinous on occasion. They take away from the real business of providing a product or service to customers. There should be less of them, not more.

Try starting a store sometime and see what I mean.

You can forget about a nobel prize. S-corps are taxed on the net
even when no money is taken out. Most of the net that is left over after taxes is used to expand the company.

I'm very conservative. I rarely agree with Mr. Kinsley's thoughts. However, he's very good at making his case - so good, that it can be frustrating for me. Therefore, I find his columns interesting.

I'm a small businessman. I dislike paying taxes. Yet, I fully agree with his thoughts on how small business' shouldn't get special tax breaks.

My problem with the column and most of the comments is that nobody suggests lowering spending. The people have got to accept substantial cuts in programs. America simply can't afford to continue spending so much money.

I can't believe that the federal budget deficits are the result of too little revenues. The federal tax receipts are massive. MASSIVE!

Have the federal government be realistic by cutting it's spending to match its receipts. That's what most people and business' have to do.

Thanks,
Shabster.

First, businesses are not taxpayers. They are tax collectors for whom taxes are a cost of doing business passed on to customers, ie, you and me.

Second, because we have unduly high corporate taxes (2nd in the world), many small businesses have attempted to lower taxes by filing as sole proprietorships at a great increase in personal risk. Almost three-fourths of those affected by Obama's tax-the-rich scheme are in fact small businesses.

Not only do higher taxes add a cost to operations that competes with the cost of maintaining employees, it makes our business's products less competitive in the export market as well as less affordable to us (as we cover the cost of the taxes levied--sales taxes are added on, but a larger amount is hidden in the price of goods and services to cover other taxes).

Furthermore, studies have shown (Al Shapero, for one) that a high percentage of small businesses in any market serves to buffer the market from downswings. Far from shedding jobs disproportionately to large businesses, they soak up the out-of-work. When Joe gets laid off at the plant, he gets a job at cousin Bill's bowling alley or auto repair shop, IF Bill can afford to hire him, which he may not if deep thinkers like Kinsley and McCain and, especially, Obama have sway.

Why should any businesses, small or large, pay income tax? Any tax paid by a business is ultimately passed on to the consumer. The result is a hidden tax that most consumers never realize is coming from their own pockets.

It's not as if the profits automatically go into the pockets of the owners or shareholders. However, if the profits are pocketed, the owner must, of course, pay personal income tax (on top of the income tax already paid by the business). The only purpose in taxing the business is so that politicians can hide just how much the average American really pays in taxes.

Most of us have no idea how much we are indirectly paying to the government and our politicians are shielded from accountability for a large portion of the tax burden.

Perhaps your reference to Krugman shows why you're so ignorant about economics. If you cannot understand how lower taxes on small business is a good thing for everybody, you're either hopeless or willingly ignorant due to ideological rigidity.

You know, if I started a small business , my objective would not be making enough money so I can work harder while risking my own ceridt and capital, it would be to get WEALTHY and RICH. Otherwise, why would you even start one and risk your own money and credit?

Just read this loser's words on "Why should the magic words "small business" entitle them to pay lower taxes?" This Crossfire reject socialist doesn't get it, or maybe he really does, if he is following Karl Marx. Just another example of an Ivy League elitist that is not successful, and thinks he should be because he "think's" he is more intelligent and should be compensated as such, and has to find a way to take it from someone else that takes risks.

My goodness! The readers who object to Kinsley's reference to Krugman in his first paragraph have clearly misunderstood that Kinsley is being ironic--at the expense of McCain, whose quoted statement at the head of the column is utter nonsense! Just read the McCain quote and the first paragraph again, folks, and you will get the joke.

I love this column. Thank you, Michael Kinsley!

"Small business" is almost as meaningless as "Family Farm". There are not many Small sizes of either any more, and, regardless, why should I support your venture if your product can not compete in the marketplace. (ADM is not a Small Family Farm, either!)

You need to make a distinction between growth-oriented small businesses and static ones. Growing ones create jobs. Their owners are not necessarily wealthy, they try to increase the value of their equity and the company generates little profit (and little or no taxes on revenue) and a growing number of jobs. Static small business (e.g., a corner grocery) can have wealthier owners, but don't grow the employment base.

The average salary of an entrepreneur is solidly middle class, despite the perception of many.

As an evil, wealthy, small business owner I don't want better treatment just fair treatment. 3 months of the year for the government and no more - from everybody. If Barak wants to raise my taxes to 50% - I'll just not work as hard - I'm not my neighbor's slave.

If I want to donate to good causes I will but neither my neighbor, nor Barak have the right to choose the good causes for me. Of, course their causes always help support leftism and more taking. That's just b.s.

I think you're right on the money about our cultural tendency to fetishize institutions like "small business" or "family farms" without economic grounding. In the case of farms, an antiquated notion of pastoral America leads us to pour money into farmers' pockets rather than letting farming become more efficient. There's clear economic arguments for letting farming go. But in this case I wonder if there aren't possible economic arguments for tax breaks for small business.

Maybe the small business on the margin between success and failure are more likely to succeed with a tax break, thus leading to the avoidance of the "job destruction" that comes with business failure.

Conversely, though, maybe we don't want to encourage the creation of the marginal small business - maybe that business is less likely to succeed the businesses that ARE being created. So the creation of a new business wouldn't necessarily be a good in itself.

Not being an economist, I don't know the answer. But whether or not there are good economic arguments on either side, you're absolutely right to encourage us to question the importance of the "small businesses" we deify.

And to previous commentors, I think Kinsey's Krugman comment is meant as a tip of the hat to his peer. Krugman just won a Nobel in economics, so it's natural to joke that he should be consulted when economic arguments (especially controversial ones) are proffered.

Wow, your obvious partisan ideology really does hinder your ability to think clearly.

First, a small business owner does not have to make over $250K to see their taxes increased. The owner's joint income with their spouse has to exceed $250K (e.g., the small business might earn $175K and the spouse might earn $75K via employment).

More importantly, no one is talking about giving small businesses special treatment (except Barack Obama). McCain is not saying small business owners who earn $250K should pay less tax than other people who earn $250K (as your article implies). McCain is merely saying that imposing higher taxes on incomes over $250K will have the unintended consequence of curbing the growth of small businesses, which are an important contributor to overall economic growth.

It's truly bizarre of you to point out that small businesses "destroy" many jobs by failing as your justification for increasing their taxes, which will almost surely increase their failure rate and therefore their destruction of jobs.

The economic argument is as follows. Increasing taxes on incomes over $250K will have an effect similar to general increases in corporate taxes because many small business owners pay personal income tax rates on their earnings instead of corporate tax rates. So, higher income taxes on small business owners are bad for the same reason that high taxes on corporations are bad (in terms of how they harm the economy, which hurts employees, shareholders, and consumers).

Most importantly, absolutely no one (sensible) is arguing that a small business owner who makes $250K is "struggling." The concern is not for the relatively well-off small business owner, but for the effect that taxing that owner will have on their business and therefore the broader economy. A small business owner making $250K who is taxed more heavily will have to reduce hiring, lay off, lower wages, lower benefits, increase prices, or some combination thereof. This actually hurts the lower wage people who might be employed by (or even patronize) the small business.

In short, it is more efficient for small businesses to "spread the wealth around" by hiring employees and lowering prices than by handing their hard earned dollars over to the likes of Michael Kinsley to dole out via an almost certainly ineffective social engineering government boondoggle.

Here's where Michael has got it upside down:

He writes:

"There is an anthropomorphic fallacy here. Big businesses are not owned by big people, and small businesses aren't necessarily owned by small people. The typical shareholder in a big business is a worker in some other big business whose pension fund has chosen to invest in that company."

%u2022 But...

We're not talking about ownership -- which would relate to capital gains (when the business is sold) or the estate tax. We're talking about COMPENSATION. The CEOs and senior management of Fortune 500 companies are indeed big people. And for the most part, small businesses are indeed owned by small people. The conversation about Joe the Plumber is about INCOME TAX.

He says:

"There is no need to encourage risk-taking entrepreneurship with special tax breaks. Risk takers will take risks, and if the risks work out they shouldn't mind paying the same level of taxes as everyone else."

But...

%u2022 Big companies have the ability to move their tax-revenues off-shore. You've seen the data...somthing like half of all Fortune 500 companies pay zero taxes.Very few small businesses are in the loophole business the way corporate America is.

He says...

"He or she might have many employees, thus creating jobs, or might be a professional solo practitioner such as a lawyer or accountant or doctor who employs no one but him- or herself (and, if they can get away with it, as many do, a couple of family members). The important point is that if our small business owner is struggling to survive, then he or she is not earning $250,000 a year and won't be affected by Obama's "spread it around" tax increase on incomes above that amount."

%u2022 But:

Solo practictioners are not included in the standard definiton of small businesses. And many
entrepreneurs are Subchapter S corporations. Does Michael even know what that means? It means their annual profit (or loss) gets passed down to the owner on what is called a K-1 form. These businesses need operating capital, so the only way for an entrepreneur to leave $250,000 in his business for the next year -- because that cash is critical to survival while waiting for receivables to come in -- is to pay personal income tax on that in ADDITIONAL to his salary.

I don't think Michael understands that at all, because he is convinced that the only way they'll pay more tax under Obama is if they take $250,000 a year or more "out of the business."But they'll pay the higher tax even if they leave it IN the business.

In addition:

%u2022 We reward risk-taking when it comes to investing in the stock market. It's called a capital gains break. If those risks "work out", to use Michael's term, investors pay less than money they earn as W-2 employees. The economic reason to do that is simple: we want to encourage capital formation and provide incentives for investors to put their money into companies that will use it to expand and create new jobs.

Isn't there the same argument for encouraging entrepreneurial risk-taking? Entrepreneurs have almost no access to start-up capital; they have to borrow personally, use their credit cards and home equity loans. Even though small, female-owned businesses employ more people than the Fortune 500 combined, the capital markets (when they are working, at least) are structured to provide access to capital for the Big Boys. Why shouldn't income that derives from that kind or risk taking be entitled to a different tax treatment than the money that flows into the pockets of cossetted CEOs who take no personal risk whatsoever, and who get rewarded as their shareholders suffer?

%u2022 This economic collapse and the down-sizing that will result will drive millions into the entrepreneurial economy. Yes need a kind of "industrial policy" to encourage them...the SBA is broken and everyone knows it. And VC funding is only available to a tiny, tiny triangle at the top of the entrepreneurial pyramid. Helping entrepreneurs is as important to America's long-term success as bailing out the banks.

An important point, uncharacteristically badly made by Kinsley. Lots of WTF? moments that seem to arise from his, or maybe Tina Brown's, insistence on following the bloggy smirk-and-sneer format that, to put it mildly, doesn't mix well with a careful, detailed, thorough and accurate treatment of any tax policy. This is complicated stuff. The bumbling Tweedledum and Tweedledee candidates we're stuck with are bad enough. Kinsley as an HLS grad should know better than to try to dismiss it with as much snark as he does. Then again, given the embarrassing performances by so many HLS grads in DC recently, maybe it's not surprising...

wouldn't it be an American tragedy if that two-dollars-and-change a day that Joe the Plumber might pay under Obama's plan discouraged him from grabbing his $280K dream?! and translating as it does to a cup of coffee, mightn't that ruin those mom and pop coffee shops on every corner of every American street?

o! Woe is Us!

You're right to consider small business taxable income as no different that any other kind of income.

McCain's position is 180 degrees wrong.

Since virtually all small businesses are S Corporations, LLCs or sole proprietorships, they are disregarded for tax purposes and all taxes on net income are paid by their owners personally -- at personal income tax rates. Assuming that the business throws off more money than the owner needs to live on, tax avoidance provides a nice motive to reinvest excess cash into the business in ways (new employees, increased marketing, equipment purchases, etc.) that reduce the businesses reported net income. In addition, excess funds can be used to pay many of the owner's expenses (car leases, meals, travel etc.) and diverted into retirement plans, insurance policies and other tax avoidance or deferral strategies -- all of which are legitimately deductible (within limits).

In short, as any decent financial consultant will admit, almost any small business owner who pays substantial income taxes on business income (beyond their own, often below-market salary) is likely a fool.

Given these circumstances, lowered tax rates on small business income would encourage more money to be transferred to business owners personally through higher salaries and profit distributions and would thus act as a disincentive to business investment and job creation!

I am left wondering whether Mr. Kinsley has ever had any actual experience with a small business. I assume he has or wouldn't opine on this issue. Having started and run small businesses for over 15 years, I am amazed about how little our politicians and certainly the media actually understand about business and economics.

This is very simple, and I will try and be clear. The question here is who should decide what to do with the money you earn. If a small business earns more then $250K, does that person put the money under the mattress. Perhaps they donate it to right wing or terrorist organizations. Or maybe they buy drugs or liquor (subject to tax of course).

Its almost as if some folks think its a crime to make too much money, such that the government needs to step in and make sure that the money goes to the right place (in their estimable opinion or interest). This is what this is all about.

Giving more money to the government is like giving too much money to your child. What happens is, with a never ending supply of funds so to speak, there's no reason to work harder, be more efficient or be productive - the definition of government. We all know the stories about kids given whatever they demand, and how that works out in the end.

The government distributes tax revenues it collects to special interests and loyal constituencies. Not all of it mind you. Not even a large percentage of it. But enough of it to corrupt the system and the politicians we elect. Both parties. And, although it may be noble or fashionable to think that we need to use tax revenues to uplift folks that need a hand, the government has NEVER been able to effectively accomplish that goal, yet we're going to try and let them do it yet again. Didn't we learn from public housing. Didn't we learn from welfare. Aren't we now learning about home ownership. Every single time the government promotes social policies through economics and taxes, the whole things goes to hell in a hand basket.

The more money Joe the Plumber can keep, the more likely he is to buy goods and services in his community, thereby raising the economy there. The more money he can keep, the more likely he is to try and grow his business even more, and create even more jobs in his community. The more money he can make, the more likely he is to save some of it, thereby raising the savings level in the country. The more money he makes, the more likely he is to invest in stocks, or real estate, or maybe someone else's new small business idea. I know someone will call this "trickle-down" economics, being a sound bite slave. But in actuality this principle was well articulated by John F. Kennedy. The last true Democrat, before the party was hijacked by McGovern, Carter and their disciples. I say this as a former Democrat who longs for the party of JFK, but is now a humble Independent.

We need to stop this pointless discussion about whether folks should pay more taxes when they are successful. That is not the issue. The issue is that individuals are better equipped to raise the country up by deciding how to spend their money, then the government figuring out how to spend it for them. Its amazing that were having this debate yet again, especially in the face of an economic crisis where the government figured out yet another scheme, how to spend not the tax revenue it collects, but all of our money sitting in banks. They did this by promoting policies, regulations and standards that forced more risky loans to be made, loans made with OUR money.

Ooops. Sorry about that. Pay it no mind, wasn't really the government's fault, it was just some greedy Mr. Potters. And next time, with Obama running the show, I'm sure they'll promise to get it right.

Give me a break.

One will never earn any award, let alone basic credentials, in economics without understanding that the filed focuses on human commercial behavior and, more specifically, the incentives that drive behavior. The reason why it is important to favor small businesses is because, as you note, small businesses create more jobs. That is, we want to encourage more people to start small businesses and to drive them as far as possible so that they both employ more people and add more cash flow to the economy. If a small business owner has a choice to take on more business, for which they would need more employees, they are less likely (not unlikely, just less likely) to do so if they will not enjoy a financial reward for doing so.

My wife operates a small professional service firm. Every opportunity she has to take on more business would require more work from her, regardless of how many additional people she hired. Not only would it impose more executive burden on her, but it would also impose more personal risk on her. So, if she will not substantially benefit herself -- her family, really -- by expanding the business, she simply will not do it. Certainly, there are other incentives involved, but this is the core choice. So, if small business owners are not incentivized to expand by the potential of personal gain, they won't; and someone will go wanting for the job that would have been created.
Assuming, for sake of argument, that your assumption that small businesses are less stable is accurate, the best cure is to create the strongest incentives for small businesses to grow in order that new jobs are created for people to move into if they lose a small-business job. There is simply no substitute for this that the government can offer. Sure, the government can offer unemployment assistance, but that is a zero-sum proposition, because only one party benefits. Actually, it is a negative sum position, because someone, somewhere, who is more industrious, has to pick up the tab... for nothing in return.
You may assert a "social justice" argument for some putatively moral reward or imperative for small business owners to grow their businesses and take on more responsibility for little or no personal reward. But human history, including the abject economic failure of every communist experiment, and the disillusionment of the European socialist model, which still fails to provide such "social justice" to all, demonstrates the fallacy of the position. That is, every attempt to subsidize personal failure at the expense of personal success leads to less success, which leads to a shrinking pool from which to subsidize anything at all.
That is why small businesses, and the welfare of those businesses, are crucial to America and every American.

One will never earn any award, let alone basic credentials, in economics without understanding that the filed focuses on human commercial behavior and, more specifically, the incentives that drive behavior. The reason why it is important to favor small businesses is because, as you note, small businesses create more jobs. That is, we want to encourage more people to start small businesses and to drive them as far as possible so that they both employ more people and add more cash flow to the economy. If a small business owner has a choice to take on more business, for which they would need more employees, they are less likely (not unlikely, just less likely) to do so if they will not enjoy a financial reward for doing so.

My wife operates a small professional service firm. Every opportunity she has to take on more business would require more work from her, regardless of how many additional people she hired. Not only would it impose more executive burden on her, but it would also impose more personal risk on her. So, if she will not substantially benefit herself -- her family, really -- by expanding the business, she simply will not do it. Certainly, there are other incentives involved, but this is the core choice. So, if small business owners are not incentivized to expand by the potential of personal gain, they won't; and someone will go wanting for the job that would have been created.
Assuming, for sake of argument, that your assumption that small businesses are less stable is accurate, the best cure is to create the strongest incentives for small businesses to grow in order that new jobs are created for people to move into if they lose a small-business job. There is simply no substitute for this that the government can offer. Sure, the government can offer unemployment assistance, but that is a zero-sum proposition, because only one party benefits. Actually, it is a negative sum position, because someone, somewhere, who is more industrious, has to pick up the tab... for nothing in return.
You may assert a "social justice" argument for some putatively moral reward or imperative for small business owners to grow their businesses and take on more responsibility for little or no personal reward. But human history, including the abject economic failure of every communist experiment, and the disillusionment of the European socialist model, which still fails to provide such "social justice" to all, demonstrates the fallacy of the position. That is, every attempt to subsidize personal failure at the expense of personal success leads to less success, which leads to a shrinking pool from which to subsidize anything at all.
That is why small businesses, and the welfare of those businesses, are crucial to America and every American.

As a small business owner struggling for success, one word came to mind the entire time I read this article:
jackass.