Showing posts with label entrepreneurs. Show all posts
Showing posts with label entrepreneurs. Show all posts
Thursday, February 16, 2012
Quote of the day: If Republicans Are So Great For Business, Why Does Silicon Valley Support Democrats?
See http://finance.yahoo.com/blogs/daily-ticker/republicans-great-business-why-does-silicon-valley-support-193631152.html
I recommend watching the interview as well as reading the summary.
Saturday, September 25, 2010
Losing money by avoiding taxes
On NPR's "All Things Considered" we heard an interview with a businessman who said he was reluctant to hire any new employees because of the uncertainty of the tax rate changes. I immediately thought, "What do tax rates have to do with hiring? Either the costs are covered by sales or not. Taxes will be on the net income, not costs. Doesn't this guy know accounting?" So, I made up a scenario and ran the numbers.
Suppose a new employee would be paid $20,000 a year. Payroll taxes, health insurance, and so forth could be $10,000 a year. Materials for the employee to do his or her work might cost $10,000 a year. The employer would then have to have $40,000 a year in additional sales to break even. Taxes would not be an issue.
Suppose that the employer makes $44,000 in additional sales a year because of hiring the new employee. That gives $4,000 additional net income. If the company is an S corporation, then the $4,000 passes on to the employer's income, not the $44,000 in additional sales.
If the marginal rate for the employer's personal income tax was 30%, then his or her additional tax would be $1,200 leaving $2,800 extra income. If the rate was 35%, then the additional tax would be $1,400, leaving $2,600.
So, this employer would give up over $2,000 in extra income to avoid paying $200 more in taxes in his "worst case" scenario.
I ran this scenario by my daughter who is a partner in and president of her own company. The only thing she said was that most companies would want to have a 200% return in sales per each new employee rather than a 110% return. That is, if a new employee cost $40,000 per year, then sales should increase $80,000, rather than $44,000 I propose. If so, that is lot of extra income to throw away to avoid paying additional taxes.
Suppose a new employee would be paid $20,000 a year. Payroll taxes, health insurance, and so forth could be $10,000 a year. Materials for the employee to do his or her work might cost $10,000 a year. The employer would then have to have $40,000 a year in additional sales to break even. Taxes would not be an issue.
Suppose that the employer makes $44,000 in additional sales a year because of hiring the new employee. That gives $4,000 additional net income. If the company is an S corporation, then the $4,000 passes on to the employer's income, not the $44,000 in additional sales.
If the marginal rate for the employer's personal income tax was 30%, then his or her additional tax would be $1,200 leaving $2,800 extra income. If the rate was 35%, then the additional tax would be $1,400, leaving $2,600.
So, this employer would give up over $2,000 in extra income to avoid paying $200 more in taxes in his "worst case" scenario.
I ran this scenario by my daughter who is a partner in and president of her own company. The only thing she said was that most companies would want to have a 200% return in sales per each new employee rather than a 110% return. That is, if a new employee cost $40,000 per year, then sales should increase $80,000, rather than $44,000 I propose. If so, that is lot of extra income to throw away to avoid paying additional taxes.
Tuesday, July 27, 2010
"A Grand Unified Theory of the Jobless Recovery"
The Atlantic Monthly published an article with the above title by Derek Thompson on 2010-07-26.
He gave some explanations that I was only vaguely aware of. One of course was high executive salaries, fewer employees, more money for the honchos. Thompson added that the pay in stock options increases the executive incentive to keep the price of the stock high, the less money going out to employees the happier stock traders will be (my spin about stock traders).
Quite a discussion follows.
One point was that "Reaganomics fostered the entrepreneurial activity that made the technology revolutions of the PC, cell phone, and internet happen." Let's see, Steve Jobs and Steve Wozniak established Apple Computer on 1976-04-01 before Jimmy Carter was even elected. A whole bunch of other computer manufacturers sprung up about the same time. The IBM PC was introduced on 1981-08-12, about seven months after Ronald Reagan was inaugurated. That probably means that the plan to create and sell the IBM PC was well underway before Reagan was elected. Maybe we should credit Jimmy Carter with the IBM PC:)
What people who credit a president with the success or lack of success of the economy fail to recognize is that many creative people are going to go ahead with their ideas regardless of who is president and what the "economy" is like. Look at the success of the iPad and iPhone in this "slow economy".
He gave some explanations that I was only vaguely aware of. One of course was high executive salaries, fewer employees, more money for the honchos. Thompson added that the pay in stock options increases the executive incentive to keep the price of the stock high, the less money going out to employees the happier stock traders will be (my spin about stock traders).
Quite a discussion follows.
One point was that "Reaganomics fostered the entrepreneurial activity that made the technology revolutions of the PC, cell phone, and internet happen." Let's see, Steve Jobs and Steve Wozniak established Apple Computer on 1976-04-01 before Jimmy Carter was even elected. A whole bunch of other computer manufacturers sprung up about the same time. The IBM PC was introduced on 1981-08-12, about seven months after Ronald Reagan was inaugurated. That probably means that the plan to create and sell the IBM PC was well underway before Reagan was elected. Maybe we should credit Jimmy Carter with the IBM PC:)
What people who credit a president with the success or lack of success of the economy fail to recognize is that many creative people are going to go ahead with their ideas regardless of who is president and what the "economy" is like. Look at the success of the iPad and iPhone in this "slow economy".
Monday, June 22, 2009
Forget jobs, create opportunities
I've wanted to write an entry like this for many weeks. Today an article in Yahoo Finance gave me an added impetus. It was on Kodak stopping production of Kodachrome, one of its signature films for over seventy years. See "Sorry, Paul Simon, Kodak's Taking Kodachrome Away".
Quite some time ago I read about somebody complaining about the job situation in Rochester, New York. He said that one used to be able to go to the Kodak factory and get a job right out of high school. I believe he also blamed the lack of jobs on foreign competition.
It was not foreign competition that reduced the jobs for making film; it was technical competition. The rise of digital photography led to less and less use of film cameras and thus fewer and fewer sales of film. Film cameras that cost over two hundred dollars new now sell on eBay for prices that don't justify the shipping costs. I have two working Minolta SRTs with an extra 70-185 zoom lens and an extra 35 mm lens. I hope I shoot the last roll before the sole processor of Kodachrome stops doing so. But it is so much easier to use the little digital camera that I have on my belt that I doubt I'll finish the roll in time.
I fault Obama's stimulus package for focusing on creating jobs for existing skills, thus prolonging the need for those skills. For example, the stimulus package "creates" thousands of construction jobs. We will always need construction workers, but will we need so many? What happens when all these "shovel-ready" projects are completed?
Wouldn't it be better to plan an infra-structure that helps states and communities develop a flexible work force that creates its own opportunities. In other words, we need more entrepreneurs and fewer employees.
It will be a long, slow process to shift our focus. Too many people want the supposed security of benefits rather than the security of adaptability. As long as health insurance is tied to jobs, we will have too many people who want jobs instead of becoming, even on a small scale, an entrepreneur like Steve Jobs.
Quite some time ago I read about somebody complaining about the job situation in Rochester, New York. He said that one used to be able to go to the Kodak factory and get a job right out of high school. I believe he also blamed the lack of jobs on foreign competition.
It was not foreign competition that reduced the jobs for making film; it was technical competition. The rise of digital photography led to less and less use of film cameras and thus fewer and fewer sales of film. Film cameras that cost over two hundred dollars new now sell on eBay for prices that don't justify the shipping costs. I have two working Minolta SRTs with an extra 70-185 zoom lens and an extra 35 mm lens. I hope I shoot the last roll before the sole processor of Kodachrome stops doing so. But it is so much easier to use the little digital camera that I have on my belt that I doubt I'll finish the roll in time.
I fault Obama's stimulus package for focusing on creating jobs for existing skills, thus prolonging the need for those skills. For example, the stimulus package "creates" thousands of construction jobs. We will always need construction workers, but will we need so many? What happens when all these "shovel-ready" projects are completed?
Wouldn't it be better to plan an infra-structure that helps states and communities develop a flexible work force that creates its own opportunities. In other words, we need more entrepreneurs and fewer employees.
It will be a long, slow process to shift our focus. Too many people want the supposed security of benefits rather than the security of adaptability. As long as health insurance is tied to jobs, we will have too many people who want jobs instead of becoming, even on a small scale, an entrepreneur like Steve Jobs.
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