Where are the numbers?

The Dec. 10 letter headlined “Tax cuts will aid businesses” provides a glimpse of something we never see in all the dialogue on the subject – a small business. The writer actually names his business and submits that this cut is going to “do wonders ... to keep growing and servicing my community.” Well, OK to that.

But, do you know what would make this a really powerful letter? Numbers. Here is a business owner who is declaring that this tax cut will have a stunning material effect on his operations. All he would have to do for the editorial is account, in percentage terms, for what he will do with the tax cut.

The tax cut money drops straight to the bottom line – more profits, taxable unless he invests it. Invest it where? Larger material purchases to lower unit costs? Newer, faster, automated equipment to improve gross profit? Marketing/advertising to increase sales?

No, profitable businesses have access to capital for that at low interest rates — line of credit on sales and inventory, lease/buy instruments from the banks and equipment manufacturers. Borrowing rates are low and interest from borrowing for these things is deductible.

So where do you put tax relief money? How about wages and benefits for employees? The tax relief shows up every three months when tax filings are done — it is a cash flow input. So let’s call the tax relief “X.” The business could pay, say .5X to himself and the other half to employees by way of wages and benefits.

Benefits? More holidays, more vacation, chipping in on health care are winners. Another example: The business pays the owner .8X and disperses the .2X to the employees. Or he keeps it all.

Tax breaks do nothing for start up businesses until they are profitable. No profits, no taxes. So let’s look at a business before and after the tax break, see where the money went and be clear about what this tax break is really all about.

Jim Cassidy, Henderson