Obama’s Tax Credit For The Middle Class Is Misleading – Part 1 (A Layman’s Common Sense Perspective)

I am not a business owner (yet), but hopefully I will be at some point in my life.

For now though, I am an employee for a business and am scraping hard to get by in the middle class. Like most, I don’t think I’m paid as I should be, but I am probably paid just enough not to quit, since my pay covers (mostly) my obligations.

So I should be excited that Obama’s plan will put more money in my pocket, thanks to folks with last names like Gates, Allen, Buffet, et. al, right?

Nope. Try to find a mainstream media article that talks about the effect of these corporate tax hikes and small business owner tax hikes on the overall picture. Context is king…as always.

For one thing, I know that the business I work for doesn’t keep a wad of cash in its safe labeled “Money Set Aside For Future Government Confiscation”. The return on investment is required to be at a certain rate in order to satisfy those who risked their capital to start this venture in the first place. As soon as Obama taxes the corporation, the cost of doing business goes up. In order for the company to continue on its growth plan, it has basically two options: 1 – raise the price of its goods and services in order to maintain the required ROI, or 2 – reduce the cost of goods sold or its capital investments in order to maintain the required ROI.

In the marketplace, both can be difficult to accomplish, but especially #2. Possibly a combination of both. Raising prices may not even be an option depending on the market. Reducing the cost of goods sold can be done a number of ways. The most important effect is the amount of earnings that get reinvested back into company growth. One of the best ways to control costs is to control payroll.

So…while Obama’s tax plan will supposedly benefit me by using the federal government to transfer corporate wealth to me, the same corporations will have less to give in terms of wage increases and bonuses. Add the economic troubles to go with the tax hikes, and any wage increases are likely to be tight in the first place.

The end around in all of this of course is that his tax plan ends up not only putting my corporation’s earnings in someone else’s pocket, rather than the owners’ or the employees’ in terms of wage increases, it puts some of my potential salary gains into someone else’s pocket as well. So whose wealth is redistributed in long run? That’s right, the middles class’s.

I do not see myself as being better off under Obama’s plan. This is only on the pragmatic side. There are other areas to look at as well. Obama’s been talking about the problem of “stagnant wages”. If his plan is enacted, you ain’t seen nothin’ yet.

Part 2 will look at the moral implications.