REDEFINE SMALL BUSINESS AND DIVIDEND TAXES

We as a nation need to redefine two things. The first is the definition of small business. The second is what dividends we should tax and which ones we should not tax. A definition of small business based on the number of employees is wrong and so is the definition of dividend income.

A hedge fund manager with a couple of accountant and a secretary a make millions, and a donuts shop with four employees paying a huge franchise fee may clear $40,000 a year are both small businesses. They are not equal. The conservative mantra in this last election was, “Do not raise taxes on small businesses”. The people responded by saying you are right, we should not raise takes on the donuts shop. Over 97 % of small businesses earn under $250,000 a year. A tax hike would hurt them. The 3% should pay an increased rate, it would not hurt them but would help to balance the budget. The way to do this is redefine what a small business is in the tax laws. Simple.

The second definition we need to redo relates to what is a taxable dividend verses a nontaxable dividend. My pension, the money I live on is dividend based. Mitt Romney, for example, lives on dividends and does not want them taxed but neither do I.  Are our dividends equal? Of course not! People during their working life put money in tax protected accounts. They can have access to these accounts but must pay taxes if they take them out of the tax-protected status, which they do monthly or yearly when they retire. The tax rate is progressive and the IRS base taxes on the amount of money removed. As an aside, they cannot do this with Social Security. Under my proposed redefinition, Mitt Romney, or any rich person, could put his dividends into a tax-protected account but if he took money out of the account, he would have to pay taxes on the amount of money he took out. Also, simple. My guess is that he would be reluctant to pay to taxes so would not take more money than needed. Of course, their lawyers would figure out how to cheat—foreign accounts, etc—but they do that anyway so that’s a different matter.