Lane 3

By Mike Schinkel on Sep 5, 2008

Angus:

Your blog post makes an assertion for which I don’t see any supporting references. I am concerned that your fear of Obama is based on misinformation spread by his opponents. While I’m no huge Obama fan (I preferred Bill Richardson) I think he will be much better for the country than the McCain.

Further, it is not a zero-sum game. The current policies have seen a huge decline in employment and consumer confidence, and that translates negatively into your ability to make profit on which you would be taxed. All indications are that McCain will continues those same policies and that Obama will change course with results hopefully in line with those produced by the Clinton years.

Said another way, I’d rather make $1 million/year and pay 40% tax than make $500k/year and pay 20%. That’s an extreme example and I’m not advocating or endorsing such high taxes, but the point is there.

What I’d really like to see is you showing details of how an Obama presidency will actually reduce the money you have to spend on the things you mention based respectively on policy publicly presented by each campaign. If you can show that you are in fact making a choice based on actual analysis and not on media hyperbole then I’ll gladly cede your point.

That said, I’ve seen your support of startups all over the city and I’d love the chance to finally meet you and talk about how we can further help the region. Lunch sometime (twitter me @mikeschinkel)

By Paul Freet on Sep 5, 2008

I will take issue with Mike’s assertion that the Bush tax cuts negatively affected the economy. Employment has grown in the US from 144M in 2002 to 154M today. Unemployment is up slightly, from 4.7% in 2002 to 5.4% today. Most of that unemployment increase has been in the last year, and even at 5.4%, we are at historical lows and exactly where we were in 1996. Consumer confidence is not down because of the tax cuts, it is low due to the mortgage crisis and the election year media bashing of the economy. (Which BTW grew at a robust 3.3% rate in Q208).

Regarding your 1M/40% 500k/20% strawman, no economic policy by itself is going to double ones revenue from $500k to $1M in such a short time. But the tax increase, if passed, is real and will immediately affect ones ability to hire or expand their business in oder to have a chance of doubling their revenues. Even if ‘The One’ could tax our way to, say, a 5% growth rate over the current 3%, when there’s no money left for marketing or to hire salespeople due to confiscatory tax policies. Ergo, there’s no money left to invest in growing your business.

By Aarjav on Sep 5, 2008

Angus,

I’ll write a similar blog post about why I intent to Vote for Obama but for now, I find your statement that umemployment is close to it’s record low slightly incompatible with the news today that it’s at a 5 year high.

Even if both these statements are simultaneously true, doesn’t the fact that it’s at a 5 year high seem a bit worrying to you?

By Aarjav on Sep 5, 2008

intenD. Such are the vagaries of not re-reading what you write.

By Lance Weatherby on Sep 5, 2008

Here are some figures that show how much taxes would increase under Obama’s tax plan.

http://tinyurl.com/6qxs3v

Assuming that Angus makes $250k per year, his tax burden on earnings would increase by $80,000.

This does not take into consideration the incremental 30% on any dividends that Angus might be receiving.

I believe that under McCain’s plan Angus’ fair share would be unchanged.

By Aarjav on Sep 5, 2008

Paul

5.4%?

“The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five- year high of 6.1 percent”

http://www.bloomberg.com/apps/news?pid=20601068&sid=a974fas33tuI&refer=home

By Aarjav on Sep 5, 2008

Lance,

A few issues with that Boskin column.

First, from what I read, the top federal rate of 39.6% applies only to incomes over ~350k so for the imaginary Angus, the rate would be lower.

Second dividend’s will NOT be taxed at the top personal rate which Boskin alleges. From the horse’s mouth

Dividends: The top dividends rate for people making over $250,000 would be set at 20 percent.
Dividends will not return to being taxed at ordinary income tax rates.

http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf

There’s more, but I’ll dig it up over the weekend

By Mike Schinkel on Sep 5, 2008

Angus:

First, Obama’s “plan” was stated as “one possible option”: http://is.gd/2gdf And you know as well as I that the lobby against such a thing will be too powerful to ever see it get passed in congress. Few of his own party members (who all make over $102k/year) would vote for such a plan. Obama is floating an extreme “trial balloon” to get real debate going about how to resolve the social security situation. On the flip side is John McCain who has not even presented a plan. How do you know the ramifications of his ultimate plan (or his lack of a plan) will not be far worse?

But I have to ask, how many employees do you have who are actually making more than $102k/year? (If many, will you hire me? Two, does the 12.4% above $102k for each employee you mention *really* add up to all of the things you mentioned? My back of the napkin tells me you are claiming over $100k in tax burden assuming Obama’s “one possible option” became a plan. Srsly?

And according to Dvorack you won’t see a negative affect until you get to over $600k/year in income. http://is.gd/2ggE Do you make that much?

As for unemployment rates they are now at 6.1%, the worst in five years, and the trend is upwards and alarming: http://is.gd/2gbD

I believe there is a unconscious divide between those who are employed and/or running businesses that are not currently hurting and those that this economy has hurt and I think it is because during the Clinton years we become do conditioned to think everything is well and good and will continue. Yet today those who are employed don’t really get the fact that much of the prosperity that we are used to is crumbling away. If we don’t shore up the middle class, BALANCE THE BUDGET, and pay down on the national debt we’re likely to see continued decline.

Myself, I’m feeling it. It’s much harder to get consulting projects now than it used to be. Projects are being postponed or cancelled, and budgets are being cut. It’s also much harder for me to start a business because credit is much, much tighter and THAT is a real problem for the economy. Sure most of the top 1000 companies are all doing gangbusters but the back of the economy is really small business and small business is hurting from the Bush years; we don’t need a continuation of those policies.

As for consumer confidence vs. price of energy, I’d say the latter definitely has an effect but the prospect of loosing their jobs (or having already lost their job, or having to take a job for 75% of their recent former pay) looms a much higher concern.

As for the price of energy, McCain’s primary energy platform is “more drilling” and a smattering of other disconnected initiatives without a clear focus (i.e. a $300 million “prize”) http://is.gd/GYF Obama’s energy platform is much more cohesive with a focus on a 10 year plan to elimate dependency on foreign oil including short term relief and $150 billion (yes, billion with a “B”) investment over ten years to catalyze private efforts to build a clean energy. http://is.gd/2ghM Seems Obama is even considering Republican Arnie for Energy Czar! http://is.gd/SPn Don’t think Obama’s plan will drive your business and innovation? If not, I’d say your just thinking with a partisan bent.

I also think the “saddling small business with a higher tax burden” is a Republican talking point and scare tactic with no basis in reality. You quickly latched onto Obama’s “one possible option for social security” as a reason not to vote for him yet ignored the part of his Democratic nominee acceptance speech where he said “I will eliminate capital gains taxes for the small businesses and the startups that will create the high-wage, high-tech jobs of tomorrow.” http://is.gd/2gf1 What about that? To ME that sounds like far more important that his “potential option” for a social security plan and a much better reason to vote for Obama than McCain.

I fear people who focus on it being a zero-sum game will wake up one day and realize that there really is a problem but only after we’ve declined a significant amount. At that point it will be too late and building it back up will be all that much harder.

McCain is old school and Obama is new school. If you want to compare how they will govern let’s just look at three things about their respective campaign: 1.) Campaign Organization, 2.) Fundraising, and 3.) Use of Social Media technology. Hopefully you can see that there is no comparison there. I’d much rather have the man and his team who did far better on all those three than have his opponent. For me the future is bright for the things both you and I care about, but not if we elect McCain.

Now I do have a litmus question for you. Prior to the choice between Obama and McCain, did you identify more with the talking points of the Republicans or Democrats? I ask about “talking points” because reality is far different for both parties. Myself, depending on major issue, I’ve always been divided. My guess is you have always strongly identified with Republican talking points? If so, that’s consistant with pyschologist studies who say that those who “lean” in one politic direction here only positive from their party and only negative from the other party.

Personally, I’d happily vote for a Republican if it were someone like Colin Powell, or even Arnold Schwarzenegger. But McCain+Palin are definitely not the ones that will lead us to better times. At least IMHO.

Respectfully,

-Mike Schinkel

By Michael Mealling on Sep 5, 2008

Aarjav,
Yes, a 5 year high. Look at that 5 years and the preceding 5 years. Five years ago was 2003 and we were still in a slump due to 9/11 (we were due for one then anyway given how business cycles are acting these days). Going back further there was a bump in the mid 90s. Then you get into the 80s and it jumps above 7 for a long time. The point being that at a macro-economic level, 6.1% unemployment is still considered full employment. Historically economists thought it was impossible to ever get unemployment this low and keep it there.

The other point is that the business cycle still exists and that being able to keep unemployment and inflation within 2 point swings on either side of their average is absolutely amazing. Especially after a major attack on our country and two wars. Only an economy that is kicking unholly ASS can do that.

But we are having some problems with companies moving out of the US due to our incentive structures. And if you raise taxes you are going to drive small companies either offshore or out of business. You’re also going to force would be entrepreneurs to decide to stay at a full time employer instead of trying to join the rest of us. Lord knows if my taxes go up (and they probably will under Obama) that I will have to think twice about what effort I put where.

By Aarjav on Sep 5, 2008

Angus, of course. I was simply discussing each part of the table from Boskin’s column that lance posted separately.

I don’t think I ever implied that all tax is capped at 39.6%.

By Mike Schinkel on Sep 5, 2008

@Paul: I will take issue with Mike’s assertion that the Bush tax cuts negatively affected the economy.

They didn’t negatively affect the economy, they signficantly affected the distribution of who saw gains. Gains over the Bush years have been highly concentrated over a much smaller group whereas most people saw declines.

And unemployment is not 5.4%, it’s 6.1%; your stats are old.

No, consumer confidence is not down because of the tax cuts; I didn’t say that; that is too simplistic. It is done because of the collective policies of the Bush administration and especially including the mortgage crisis, itself engineered by Phil Graham http://is.gd/2gjF with complete support of the current administration.

My 1M/40% 500k/20% was not meant to be a real example (as stated), it was mean to make for easy math when one is reading my comment. Quick, which is preferrable? $250k/year at 15% tax or $300k/year at 20% tax? Point taken?

As for immediate taxation, read my follow up to Angus, or paraphrased “It ain’t gonna happen that way anyway.”

Finally, since you are calling him ‘The One’ I can tell you are agruing not with logic but only with your emotion and talking points. Seems you’ve already made up your mind using his opponent’s mocking portrial. So is there really any more reason to debate?

By Mike Schinkel on Sep 5, 2008

@Lance You quote a senior fellow at the Hoover Institute, the conservative public policy think tank, expect to be taken seriously? Let’s see if we can’t find a more biased source capable of even more supreme subterfuge, can we?

By Lance Weatherby on Sep 5, 2008

Mike, if you want a more biased link look at the one that Aarjav posted.

By Mike Schinkel on Sep 5, 2008

@MichaelMealling: “Obama=Taxes and Taxes=bad” is far too simplistic to portray reality. First off, someone has to pay for the multi trillion dollar war that Bush got us into and that McCain will continue.

Simply put, if Obama ends the war vs. McCain continuing it, we’ll have far less need for taxes. That’s also simplistic but presented in the spirit of the debate. ‘-p

Or another way to say it as one “esteemed” politician once said “Read my lips: NO NEW TAXES!” ;-0

By Mike Schinkel on Sep 5, 2008

@Aarjav I didn’t quote nor endorse Aarjav’s link. I think this is far more realistic (i.e. it doesn’t boil things down to simple talking points): http://is.gd/2glO

By Aarjav on Sep 5, 2008

Lance,

Are you saying that there is a source more authoritative about Obama’s tax plan than Obama’s tax plan?

If you don’t agree with the rosy words surrounding the numbers or don’t trust him and think he’ll hoodwink by throwing it out after he’s elected, that is another issue but how can the *tax percentages* the plan states be more biased?

By Mike Schinkel on Sep 5, 2008

@angus: taxes are going up under an Obama presidency. Can we agree upon that?

Percent maybe, I don’t think you’ve made it clear your net will decline.

By Aarjav on Sep 5, 2008

@Mike I was simply debunking the numbers in the Boskin column with that Plan.

I am no supporter of higher taxes and in fact there’s controversy about whether higher taxes result in higher tax income at all – something Obama’s own economic adviser has done research on in the past. See my old blog post about it

http://contextualize.wordpress.com/2008/04/25/does-increasing-taxes-decrease-taxable-income-one-austan-goolsbee-said-no-long-before-he-met-obama/

Now Goolsbee comes out on the side of raising taxes anyway (though this paper was written before he met Obama) but as I point out in my post,

Also not quantified here is the impact an increase in tax has on the soft factors – the level of motivation of VCs (for example) to invest. These ’soft’ factors are always the hardest to judge (and often the most important) in finance.

So I am genuinely worried about how VC investment levels will fare under Obama. And yeah, I don’t like paying higher taxes either. Especially FICA taxes which, as a legal immigrant, I pay but never benefit from.

By Lance Weatherby on Sep 5, 2008

Aarjav, I was saying, perhaps poorly, that there is only one person of equal bias to Mr. Obama and that would be Mr. McCain. Of course his document is the most authoritative. As he is trying to sell something, it is also the most biased and also has conflicts that make no sense.

Two examples.

1. “Families with incomes below $250,000 will continue to pay the capital gains rates
that they pay today.” and “Barack Obama
understands that small businesses are the engines of our economy, and he will eliminate all capital gains taxes on investments in small and start up firms.” I like the latter, if it is real it might result in me voting for him, bit it does not mesh with the former.

2. “The top two income tax brackets would return to their 1990’s levels of 36% and
39.6%.” and “Families making more than $250,000 will pay either the same or lower tax rates than they paid in the 1990s”. These statements are biased. No tax table is provided in the Obama document. For those that do not know the current top two income brackets are 33% and 35%. The 33% bracket starts at $182,400. So our fictional Angus would pay $2,028 in incremental Federal income tax. Despite what the document says it appears that taxes are going up for those that make more then $182,400 not only for those making over $250k.

I am a fiscal conservative and social liberal. My fundamental belief is that individuals can make better choices in the redistribution of wealth then the USG. Perhaps you disagree with that. That’s fine.

To answer your question Angus. I would not hire the software dev for the new venture but continue to invest in my core business. And I believe that, multiplied many times over, will have unintended consequences.

By Mike Schinkel on Sep 5, 2008

@aarjav: Sorry, didn’t mean to imply I was condemning your link I just didn’t have time to review as I post just before rushing out the door. Besides, I figured you were fully capable of defending yourself.

@angus: Let’s look at it realistically. Let’s say Obama’s plan becomes reality, exactly as prescribed in his “one option.” Now how soon do you think that will pass and when do you think it will be effective? What’s the likelihood it will affect you within 2-4 years? Probably longer as to get it passed he’ll probably have to delay it.

Now let’s look at it selfishly for you, and for the rest of the great Ga. Tech startup community. What’s the likelihood Obama will spend that $15 billion/year investment in alternate energy, and how soon? Probably likely because it is politically easier for them to spend than raise taxes and with Democrats controlling everything it will probably go through first year. Now what’s the likelihood Ga. Tech area startups *won’t* get at least 1% of that $15 billion, or $150 million. Given your positioning in the Atlanta startup market, my guess is you would easily be able to increase your net income by well over $20k, or 0.01% of the investment that Ga. Tech startups will capture starting in the 2nd year of an Obama presidency even before you are hit with an $18k FICA increase in year 3 or 4.

But because (I’m assuming) you have cognitive dissonance related to supporting a Democrat you’d rather do what’s ideological rather than what in your real best financial interest and (IMO) in the best interest of the country at large.

And taking a completely different tack, which by no means should imply I’m abandoning my prior argument I will ask you “Would you rather have your taxes raised by someone who admits he is going to or someone who lies telling you he is not?” (”Lie” may be too strong; maybe “Isn’t competent enough to realize he will have to?”) Why is it that otherwise brilliant business people don’t see how there will be no choice for either administration but to raise taxes given the current state of the union? Interest on our national debt alone is crippling.

What’s more, with John McCain planning to continue of during his administration a multiple trillions of dollars government investment strategy that only destroys value, not create it (bombs don’t create value, anywhere) how is it you can believe their platitudes that they won’t raise taxes? McCain WILL raise taxes, but by the time he does so we’ll be so far in the hole we may never be able to dig ourselves out after which we may find ourselves say “Yes Sir Comrade Li” and “Yes Sir Comrade Wang” (ref: http://is.gd/2gyp) very frequently.

Yes, I’m being extreme again, but to make a point. After all, the Chinese essentially owns the USA for all practical purposes just like the credit card companies own those with high balances. Why? In large part because of our collective hubris and because we’ve become such a nation of internal bickers that we are not paying attention to our real competitors on the outside. When that happens in a startup company it fails; why do you think it would be any different for a country?

By Lance Weatherby on Sep 5, 2008

“Interest on our national debt alone is crippling.”

False statement.

National debt as a percentage of GDP currently stands at 2.7%. When President Clinton took office national debt as a percentage of GDP was at 4.7%.

“Why is it that otherwise brilliant business people don’t see how there will be no choice for either administration but to raise taxes.”

False statement.

There is the choice to reduce outlays, which is exactly what a brilliant business person with limited access to capital would do.

By Paul Freet on Sep 5, 2008

Ok, you’re right, my data was old, the current unemployment rate is 6.1. Which is still a historical low and equal to the first Clinton term (for perspective). Germany (the strongest economy in Europe) has an unemployment rate of 8%.

The issue is that macro economic effects are being compared to microeconomic effects. An Obama tax plan means a small business will have less cash to spend on expansion in 2009. Simple math. They will have less money to spend on people, new products and marketing. Making it difficult to grow their business. Regardless of what happens with the overall economy.

Even if I accept the proposition that higher tax rates somehow grow the economy faster than the current rates, that might be great for GE/IBM/Microsoft, who can borrow against their balance sheet for growth, but bad for small business who fund expansion out of cash flow.

By Mike Schinkel on Sep 6, 2008

@lance re:”Interest on our national debt alone is crippling”: False statement.

Not false, but your response is subterfuge. Interest rate alone isn’t relevant without considering amount of debt. I’d rather pay 99% interest on 0.1% of GDP than 2.7% on 36.9% (or 65.5%) of GDP. Neither is the “crippling” part false; it is a matter of opinion.

Per Wikipedia US debt was between 36.9% and 65.5% in 2007: http://en.wikipedia.org/wiki/United_States_public_debt
Debt has certainly grown since then.

As of April 2008, the total U.S. federal debt was approximately $9.5 trillion, or about $31,600 per U.S. resident. I believe most credit card debt counselors would say that a person in the USA with average income who owes $31k in credit card bills would be crippled with debt. Are you saying that $31k debt/person is not a concern?

At 2.7% interest that requires the average person to pay $853.20 in taxes just to cover the interest expense. And for high earners like Angus, a lot more of his taxes than $850/year are going to go towards paying that interest. But $850/year doesn’t say anything of paying down the debt it is just to maintain it. And if our credit rating as a country falters, which is not a risk we should just ignore, that interest rate will go up significantly over 2.7%.

@lance re: False statement re:requirement for taxes.

Again not a “false statement”, a matter of opinion. I predicated my opinion on the need to reduce the national debt and on potential increase in either or both interest rate and/or expenditures both of which are likely (especially if McCain takes us to war with Iran.)

Frankly I think it’s very clear that Obama will reduce expenditures significantly more than McCain: http://www.youtube.com/watch?v=7o84PE871BE (that which Jeff Haynie found “scary” but I find to be a long needed change in policy.)

So you will get no argument from me on the need to reduce spending, I respectfully think that is it not being realistic to think that we’ll not need to raise taxes, if not to reduce the national debt but because all politicians find an easier time increasing expenditures than reducing them.

I also find it disingenuous when people talk of McCain and Republicans as being the fiscally responsible party yet won’t consider 1.) How The Republicans spent like drunken sailors from 2001-07, and 2.) How Republican supporters will never acknowledge the tax burden that the war in Iraq has placed on the American people. Most disingenuous is that the cost of the Iraq war is considered an “extraordinary expense” and never quoted when the official budget numbers are quoted yet the war has been going on for five plus years with no real end in sight assuming John McCain is elected.

@Paul Freet:

So your argument is “Yeah things are bad, but other people have it worse?” Frankly, that’s not the ideal I think we should strive for.

“An Obama tax plan means a small business will have less cash to spend on expansion in 2009. Simple math. They will have less money to spend on people, new products and marketing. Making it difficult to grow their business. Regardless of what happens with the overall economy.”

Categorically unproven. First, how could Obama increase taxes for 2009 when tax law is set in prior years and he doesn’t take office until Jan 21 2009? Second, you are assuming he will get drastic increases passed quickly, which I believe is very unlikely. I’ll be glad to bet you a steak dinner at Morton’s downtown that you won’t see any FICA increases until at 2011 if at all during an Obama presidency; do I have a bet?

“Even if I accept the proposition that higher tax rates somehow grow the economy faster than the current rates that might be great for GE/IBM/Microsoft, who can borrow against their balance sheet for growth, but bad for small business who fund expansion out of cash flow.”

You are mischaracterizing my argument and boiling it down to a black-and-white, cause-and-effect issue where that was not my argument. I did not say “higher tax rates grow the economy faster.” I said that while an Obama presidency may increase taxes moderately, I see strong yet unrelated evidence to believe that an Obama presidency will do significantly more to spur positive economic development, especially for startups. I see little evidence in McCain’s positions that will do much of anything positive to spur more business for startups and small business. IOW, I was looking at the balance of Obama’s planned policies vs. the balance of McCain’s and see a lot more to like for startups and small business in the Obama plan.

And why do you continue to champion the misnomer that Obama=higher taxes=bad-for-startups when Obama’s stated position is “I will eliminate capital gains taxes for the small businesses and the startups that will create the high-wage, high-tech jobs of tomorrow?” Why do you not acknowledge and incorporate into your evaluation?

Finally, and this is to address Angus concerned with FICA over $102k why not simply reduce your salary to $102k and pay yourself dividends for the rest since Obama claims to eliminate capital cans taxes for small businesses supporting high tech? How many small businesses pay a employees who are not shareholder over $100k/year?

Seems more inadequate tax planning to me than a problem with Obama’s policies. Or what am I missing?

By Russell Jurney on Sep 7, 2008

Is it fair to consider these policies in isolation? For instance, Obama’s healthcare plan would remove the burden of providing health insurance that small businesses face as they grow.

By Lance Weatherby on Sep 8, 2008

For a somewhat factual discussion of McCain’s and Obama’s tax plans and their effects at both a micro and macro level this seems to be a pretty good unbiased source: http://www.taxpolicycenter.org/

It’s actually fascinating.

By Rich Waldis on Sep 8, 2008

Angus, I read your post and agree, but I want to read your commenters rebuttals as well. The bottom line, however, is that any massive government intervention in business can only be a negative for the business. “Free” healthcare is not free. Gov’t intervention is anti-stimulus, which is exactly what Democrats usually advocate (and unfortunately, too many republicans). Anyway, see you at the pool.

By Wei on Sep 16, 2008

Here’s a chart comparing the two camps’ tax plan effects by income level from the Washington Post. Unless you’re in that top bracket at over $600k a year, it will have little effect.

http://www.washingtonpost.com/wp-dyn/content/story/2008/06/09/ST2008060900950.html

…but Angus, if you really make over $600k a year, you’re my hero. However, there are many who do make that much who aren’t as generous as you are. While I loathe taxes as much as the next guy, I do think the money under the right leadership will actually do some good rather than be wasted on government coffee or pens.

What the entrepreneurs are trying to do in Atlanta is create a safe haven for us to explore our ideas and hopefully land on a padded mat when we fail – imagine if taxes could make that a reality across the entire country instead of just one city. I know it’s idealistic but that’s why Obama is the better choice for the rest of us who don’t make the high 6 or 7 figure salaries.