In a recent article from Bloomberg on June12th, Senator Snowe, a Republican from Maine, called the new jobs bill a ‘poison pill’ for small business growth and investment.
Snowe is talking about HR 4213, so aptly named the “American Jobs and Closing Tax Loopholes Act of 2010”. Ironically, the loophole that looks to get closed is going to destroy inflows of investment capital into small businesses.
Basically this new act has a provision that requires S-corporations to pay as much as 15.3% payroll tax on all reinvested earnings. This is the same tax that is paid to workers (although the worker pays half – 7.65%), but now will be applyed to any net income regardless of whether it is paid out or not.
This is in addition to the regular income tax that small businesses must pay. Keep in mind the top tax rate in 2010 is 35% federal and going to 39.6% in 2011. In addition, for earners over $200,000 single or $250,000 married, there is an additional 3.9% medicare tax. And we haven’t even talked about state taxes yet.
For a high earning small business owner in the US, their tax rate could be as high as 65-70%!!!! Talk about incentive for productivity…
While this may all sound like negative news, the time to plant multiple offshore flags is now. I know this legislation is only proposed at this moment and subject to change, but the fact remains that US political leaders (and I use this term lightly) are increasingly looking to boost federal and state revenues by taxation as opposed to promoting increases in productivity.
This leads to confusion and uncertainty in the business world. We need consistency in order to be productive. Who wants to invest heavily in their business when they don’t know when the next law will get passed that taxes them into oblivion? Or when the next sovereign debt default is going to happen and the US is the one confiscating retirement funds, ala Argentina 2001.
Now is the time to take action. Plant multiple flags. Diversify your assets. Establish your business offshore and take advantage of low or no-tax jurisdictions. Establish residency and/or citizenship in another country. Remember, buying healthinsurance after a heart attack is too late. Don’t make that mistake with your wealth.