Congress Singles Out Small Business Accountants & Lawyers for a Tax Increase

The House just passed HR 4213- The American Jobs and Closing Tax Loopholes Tax of 2010 – in order to spur job creation in the US. Among its many provisions are extensions to unemployment benefits, some tax credit extensions,  and a close to  the loophole where hedge fund managers carry annual profit sharing gains tax deferred and cash out paying capital gains taxes vs. income taxes.

Unfortunately, many of the jobs recently lost are permanently lost – America must return to frugality (though for some it’s too late). Folks will need to learn something new – and perhaps have to travel great distances to find a job, unless they start their own business.
Many trends are at work – the migration of creative people to a few certain cities in the US (SF, Seattle, NYC, Boston, DC) at the expense of other cities (Detroit), the globalization of the economy, incredible exploding budget deficits which will crimp many efforts of government (prob spend anyway creating other larger problems). See Richard Florida’s work for more on this trend.
Service Businesses, Including Accountants and Lawyers Specifically Targeted

Lest you get the wrong idea, this bill is not all business tax cuts – this bill also singles out specifically ‘service” s-corporations – usually accountants, consultants, advisors, lawyers – for tax increases. I am one of these FYI. Interestingly, if I sold pianos as an ‘s-corp’ I would not see this tax increase but as a service provider I will. This seems strangely arbitrary (do the bill sponsors have a beef with accountants or lawyers?) and  if this bill passes this is what I would consider doing over the next 3 years:
1. Change to c-corp (which may be more beneficial then with tax deductions available to c corps that are not avail to s corps)
2. Not hire another worker (just hired one a few months ago but now will have to pay taxes – so no more money to hire more)
3. Leave my higher tax state and locate my business in a state like Florida (no tax). If the federal govt takes from me then I will have to offset by eliminating the taxes from my state. Perhaps even consider going overseas – contrary to many people’s thinking, there are many places that offer very business-friendly tax circumstances.
4. Work less – why grow a business to support government spending? Why support Iraq? Why bail out GM? I’ll just relax – imagine thousands of small businesses, who instead of growing and hiring, just choose to “relax.”
Congress hopes to raise $11B with this specific provision – 33% of what the President requested for increased military spending for Afghanistan just this month. I doubt this will happen due to many reasons, among them items 1-4 above.
Think about it – If Congress specifically tried  to increase taxes specifically on you and your field – someone trying to work hard to grow a small business – would you work and try as hard? Would you feel singled out? Perhaps you’ll simply choose to quite and  collect 99 weeks of UE for yourself! – why work? oh wait, if you’re self employed, you can’t collect…
In summary, many people don’t understand what it takes to start a small business and grow it to the point where you can support yourself and then hire others – entrepreneurs create jobs by taking themselves from the workforce then by hiring. For example, if I work for myself, I am not competing for a “job’ somewhere else. And if I hire 2 people, that is 3 jobs created! Increasing taxes on small businesses will likely reverse this process.
Furthermore, some people are very eager to ‘tax business’ to bail everyone out – to pay for years of unemployment benefits (and not to mention, for years more of Iraq was funding, GM and AIG). They may soon find THAT golden goose dead – as Margaret Thatcher once said – “The problem with socialism is that eventually you run out of other people’s money.” This government, while looking for tax revenue anywhere and everywhere, may “napalm” this entire economy with tax increases by trying to “save it.”