Last week I addressed the five basic types of business organizational structures. With that understanding, let's now move on to taxes and the economy.
We need to understand that different industries require different amounts of capital at different times. The tax structure of each enterprise is considered when getting into a business. Operations which require large amounts of capital regularly are usually C-Corps because they can use their earnings to expand their machinery base or equipment purchases.
Improved real estate (something with a building on it) is usually held in partnerships as after the property is purchased, it is generally rented and doesn't need a bunch of money on an annual basis. Oil wells are easily divisible and sell as partnerships.
Since expenses are high in the first year of most operations, sometimes a loss occurs and that loss can be taken off of taxable income as a tax reduction. Sometimes the depreciation rate on buildings exceeds the rental income and a tax loss occurs.
President Obama often talks about the billionaires and millionaires, many of whom are in oil and gas partnerships or the real estate leasing business. Sometimes there may be net tax losses in the oil and gas business due to startup costs followed by taxable income from production in the following years.
It's very possible that the non-taxpaying billionaires and millionaires are rapidly creating jobs in the times during which they are paying no taxes. I call that private side job creation.
Upon further examination, there are something like one half of 1 percent of all taxpayers with positive adjusted gross income who don't pay tax in a year. The idea that these guys have a material effect on total tax collections just isn't true.
Remember, if we tax millionaires and billionaires at 100 percent, we could run the federal government for something like eight weeks before shutting down. If we confiscated all their wealth, we could operate for eight months.
Since no one wants to address the problem of Social Security, Medicare, and Medicaid taking 100 percent of the taxes now collected, maybe we should concentrate on the problem of restructuring those programs.
The class warfare argument looks like it's been an effective smokescreen because it shifts the attention away from the more difficult questions impacting the three. Sorry, but that smokescreen won't create a job for you.
Actually, only a tax decrease will create jobs. It's really a taxation variation of the old saw: "If you give a man a fish, he will eat for a day, but if you teach him to fish he can feed himself forever."
The real economic issue facing the country is reducing the deficit. Until we turn our attention to serious discussions there, everything else is but mere distractions.
Current tax law allows for no taxes to be paid under certain circumstances. That's not illegal nor important when compared to the gross over-spending approved in Washington. Keep your eye on the ball - in this instance, the fiscal irresponsibility out of D.C.