There are huge advantages to higher taxation when done reasonably well.
The guy was a comedian so presents unusually well, it is worth a watch.
Lets explore the taxes and purchases required by law a locally owned small business owner pays in my “income-tax free” state of Washington and compare the taxes paid by an established and profitable business with a profit margin of 5%.
In Washington State, although there is no income tax, there is a gross receipts tax.
The Washington gross receipts tax rate depends on business type. For this example, I will use 1.5%. This rate, which must be paid regardless of profitability is 30% of the businesses profit margin in the example provided.
Self employment taxes are 14.13% of profits. 50% of this tax is deductable for income tax purposes.
Health insurance is at least $6500 per year per full-time employee. Employee costs as a percentage of sales are, say 30%.
Workmans compensation insurance is highly variable, but I will use roughly the midpoint of about two thousand annually per employee.
The state sales tax is about 10%.
There are business licensing fees, inspection fees, and fines levied on businesses as well. The government heavily regulates and targets very high profit margin business, such as those in the medical profession as part of a “shake down” campaign to extract money out of them. These businesses generally “gladly” pay the fines without contest fearing litigation costs and criminal prosecution. I will assign a small value for this, but it is a significant cost and risk of doing business in a Blue State.
Real estate taxes are about 1.5% on the assessed value of the property that the business uses. Even if this business rents their space, this tax is accounted for in the market rent.
Now lets put the numbers together and estimate the amount of taxes a small business generates measured against the business profit margin.
Some Assumptions listed below:
Business Sales: $1,000,000
Fulltime Employees, including owner: 6
Square Footage of Business: 600
Annual taxes generated by this business
State Sales Tax Paid by Business Customers, $100,000.
Required Health Care Insurance, $39,000.
State Gross Receipts Tax, $15,000.
Employment Taxes, $42,390
Real Estate allocated to rent, $500.
Workmans Compensation, $12,000.
Licenses, other fees, and fines, $1,500.
Total taxes and required business spending generated, $210,390.
Net Business profit generated, $50,000.
Taxes and required soending as a percentage of net profit margin, 420%.
With numbers like these can you say Communism has not taken over?
Who is the business owner really working for? Certainly not for himself.
If you look at annual reports of publically traded companies over the years, you will notice employee compensation as a percentage of sales has been declining dramatically. The taxes business pay, the regulatory burden, and the risks a business must take all have a role in what the business can pay it’s employees.
Pehaps we should more weight to what a business owner says over what a comedien may think in determining appropiate public policy.