I am a job creator who creates no jobs | Hacker News Reader

I am a job creator who creates no jobs

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38 pointspetethomas38 comments

From speaking with a few published authors, the creation of a private C-corp is standard practice to spread income from advances and royalties out over a longer period, which provides not only lower taxes, but a steady(-ish) income stream.

Assuming I'm understanding the double tax correctly... wouldn't that still be taxed at the corporate tax rate and then taxed again when it's paid to the employee? I can't imagine a situation where that would be less expensive than being taxed one time, even at the highest income bracket.

I'm not a tax professional, but corporations are taxed on income, not revenue. Tax preparation fees, travel costs, conference registrations, pension contributions, and other expenses of the "small business" author (computer, internet, mailing manuscripts) all turn in to usable money that isn't taxed. (Via income tax, I mean. In some cases property taxes may apply.) Expense tracking becomes more of a chore than for the average wage earner, but there are trade-offs.

The author's "corporation" can also manage paid salary from year to year to correlate with deductions or navigate tax brackets, further minimizing any double-tax effect.

I file as an S corp and deduct all of those expenses, as well. Except the money I pay myself as a salary is not counted as income on my business tax return... my understanding is that for a C corp, it would be.

Wrong. Wrong. Wrong. Small businesses do not exist in a vacuum! They have partnerships. They use UPS to send packages. They use Microsoft to run their computer and Dell to build it. They buy supplies at Office Depot or Home Depot. Every dollar they spend on their business gets spent at a larger firm that employs hundreds if not thousands of people! One-man operations DO create jobs. They just don't create them in their own company!

The point is still valid. Giving him a tax break does not mean he will start shipping more packages automatically. There has to be a market, first. It's demand-side versus supply-side economics. The only reason he would spend more is because he sees market opportunity, not because he has the money to spend.

Market opportunity is infinite and is only limited by your imagination. You make your opportunities, they aren't handed to you gift-wrapped. It also just so happens that the companies that are best at creating market opportunities out of thin air happen to be the small ones!

The point is still valid. How is the tax break going to affect his imagination?

Wow. OK. I'll spell it out for you gentlemen. I discover $1000.00 in my bank account. Before, I just had $50.00, so this is quite a boost. I wanted to move my business (me, myself, and I) from just regular handiwork to cutting down dead trees. Before, I couldn't afford a chainsaw, a ladder, and safety equipment. Now I can. I can also afford some advertising, business cards, and a decal for my car. Now multiply me by a 1000. You've created jobs in the chainsaw manufacturer, ladder manufacturer, advertising agency, printing company, and the decal making guys. Get it?

Please stop assuming the pie is always fixed. Demand is not always being met. New markets are being created all the time. Oh, and while tax breaks don't affect the function of your imagination, they sure do help with bringing stuff out of your imagination into reality.

Okay, you are stating it as if the money ($1000) is 'found'. But what we are describing is tax breaks, not the lottery. Tax breaks just mean less money paid on profits.

In order for you to suddenly have $1000 more, you would already have had to have had the money. In your scenario, where did the $1000 come from? You are talking about a small business loan where you have no revenue and are starting a new business, not tax breaks.

Show me where in my post I was talking about a "small business loan", "no revenue", and "starting a new business". I was talking about an existing business branching out into a new market. I am not going to repeat myself again.

I believe they are saying that you would have bought the chainsaw, ladder, etc tax-free already, as a business. A tax break would have absolutely no effect on the ability to afford these things in the scenario you described. The "found" money is therefore more analogous to a loan than a tax break.

The way a one-man operation works is that you file taxes once a year. For you to be able to pay your income taxes, you need to save up the money you will fork over, otherwise your ass goes straight to jail. There is no withholding or anything like that.

So you set up two bank accounts and deposit say 30% of any money you would use for your non-business expenses. That money is forbidden. You cannot touch it.

> I believe they are saying that you would have bought the chainsaw, ladder, etc tax-free already, as a business.

Pay attention. With what money? You have no money. ZERO. All your money goes toward your business expenses and the rest goes toward non-business expenses and taxes.

You have no business credit. The only credit you have is personal and that's maxed out.

The overwhelming majority of one-man operations are not drowning in cash.

> A tax break would have absolutely no effect on the ability to afford these things in the scenario you described.

This makes ZERO sense. With a tax break, I can withdraw some of the money from my tax bank account and use it for whatever I want. It is found money. On top of that, spending that money on my business means I have no tax obligation on those found funds.

If your business expenses are higher because you're buying chainsaws, then you're putting less money in your 30% "forbidden" bucket. It's a wash.

your ability to buy a chainsaw is defined by your revenue, not profit. if you spent all your money you'd pay zero income tax. One can argue that higher income tax will actually encourage you to spend more.

If a sole proprietorship (i.e. one man operation) spent all its revenue on the business, the owner would die. Food is not a business expense. Neither is clothing, rent, car, etc.

Don't confuse corporations with a large payroll with people who are self employed.

> One can argue that higher income tax will actually encourage you to spend more.

A higher income tax will actually encourage you to live in a cardboard box. You will have to purchase that box, so in that way, I suppose you're right.

He creates his own job, so he creates one job.

His statement is a fallacy, if you use his little trick(his small business = 0 jobs) and multiply by the number of small business you have a false statement: "small business creates no jobs".

We know by simple statistics that small business in fact create most of the jobs, even if they only employ themselves and their family first.

That job has already been created. A tax cut will for him will not magically mean he will decide he has enough extra cash to create a meaningless job.

Though it will mean that other people are more likely to start their own one or more man operation.

Really? I highly doubt that. Most people don't want their own business, they want a steady income and not think about their jobs after 8 hours. A small decrease in tax won't change that.

Most people might want that but this legislation isn't aimed at most people. It's for the segment of society that do want their own business.

And those already have their own businesses. And if not, quitting your day job and starting a business... -1 + 1 = 0

There are many more people who are employed and thinking about starting their own business than have actually started their own business.

Creating your own business: +1 job. Freeing up a position at your previous employment: +1 job.

1 + 1 = 2 :P

Why would it mean that? People are going to quit a job and income for no income because of...potential tax breaks?

You're missing 'increased potential massive returns' from the right hand of your dichotomy.

I am not a founder, but I have wanted to start my own business for a long time.

I would have serious reservations about hiring somebody though. First you add a recuring monthly expense to your business, which can seriously impeed cashflow especially if the business has big cycles.

Thats not so bad though, the part I am most concerned about is being subject to an entire host of regulations, many of them very subjectively defined. Add to that the cost of reporting, the risk of lawsuits, regulation of working environments (no more working out of a room in your house, now you have to rent an office).

Personally I would be much happier hireing freelancers, since there is little longterm capital risk, they tend to provide their own tools and the risk of lawsuits is much smaller (as long as you pay them).

That said, most big corporations were once small and I see little danger in lowering their taxes even if we end up lowering the taxes for everybody else. It would be a good use of funds.

The only reason to hire someone is to ROI on what that person costs. As Paul Graham has written, the most obvious example is hiring a sales person. If you have to pay a sales person $75,000 per year, plus benefits, plus office space and equipment, he/she has to be worth more than that.

If said salesperson can bring in $250,000 in annual revenue, and they cost $125,000 to keep around, well that's a trade any businessperson would love to make.

But what if the market size hypothetically tops out at $250,000? You'd never hire more than one salesperson because by the time you were up to three, you'd be losing money again. So, at that point, the government could give you a ton of tax breaks, but you still wouldn't hire more than one salesperson.

To pour on the skepticism, even if a small business does create jobs, one of the time-tested laws of small businesses is that most of them fail, thus destroying the jobs they created. On the whole small businesses are much closer to a wash in terms of job creation than we're likely to admit.

I keep hearing that most small business fails. What I don't hear is what constitutes a failure. Plenty of people choose to make a little money on the side but those business tend not to last.

The failure I was referring to is essentially having to close doors for financial reasons.

I'm in the process of building out my startup - now at 13 employees. Would having 3-5% lower taxes give me an incentive to build out quicker, or change my plan? : NO.

Interesting. Can you tell at what % reduction you would start to see an incentive?

The main factors are whether each addition will incrementally add to P&L, and fit with the rest of the group.

One key point in my business is that most of our wage costs are variable (we can see the direct P&L impact of every hire : there are no 'hidden' producers), so finding people who can find a niche is the main challenge. The principal benefit of being in the States (compared to Europe) is 'employment at will', so that hiring mistakes can be undone quickly.

As for taxes, paying more is a good problem to have (assuming that all your competitors are on a level playing field).

OTOH, healthcare costs are a huge burden : It would be far better for my business if they were variable (i.e. taxed as a % of wages).

I would see an incentive for hiring people if I didn't have to deal with health care at all. I think employer based insurance is a huge drag on America's businesses. I would happily pay some percent more in taxes if I didn't have to deal with it.

Funny article, but isn't creating one job a pretty good thing to do, anyway?

Yes. It is a true statement to say that most small businesses only employ the owners.

But if everybody created only one job -- their own -- isn't that enough? If I were getting started, I would love to be around a bunch of guys making 200-400K per year. I'd detail their cars, take care of their lawns, help them with taxes -- all those people not creating jobs? There are a lot of jobs they are creating while they are not creating jobs.

I think a much more interesting question would be: why? Instead of the lecture about evil Republicans, how about addressing the reason so many businesses don't want to employ anyone? Is it something we could fix?

I've ran a corp for about 20 years now. To me, you'd be an idiot to employ people in the regulatory and tax nightmare the United States is in right now. Much better to have a "lifestyle" business and stay under the radar. I'm probably an outlier -- I guess. I'm sure others have their own reasons. Getting at those reasons seems like a much more productive use of energy than grandstanding.

> "you'd be an idiot to employ people in the regulatory and tax nightmare the United States is in right now.... I'm probably an outlier"

A couple weeks back, CNN Money asked a bunch of small business owners what they'd ask Obama to do to make it easier to hire [0].

Several of those interviewed said cumbersome regulations and ever-changing rules were the main impediments to hiring. There were specific complaints about corporate tax rates and unaffordable health care. Both the 7th and 8th slides amount to "stop doing stuff! Stop rocking the boat!"

I'd say you're not an outlier.

[0] http://money.cnn.com/galleries/2011/smallbusiness/1109/galle...

Aren't many small businesses lifestyle businesses? My brother, for example, hires employees for his computer store without thinking twice about it.

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