OT: Illinois fair tax: yes or no?

[League Circles]

It's interesting that it's said so often that higher income people paying not just a higher amount of taxes, but a higher percentage of income in taxes is so obviously and clearly more "fair". IMO, one could more easily argue that a flat dollar amount tax per person (not even flat % but actually equal dollar tax payment for everyone) would be more "fair". Does anyone ask the higher income people to pay more when splitting a personal expense like a restaurant bill?

I would get a "tax cut" under the proposed rates like most people, and we desperately need the revenue, but I think I'm going to vote no, mostly just because I'm sick of the "tax the rich" trope being used as a scapegoat to solve every social and political problem. It obscures the greater issues of public expenditures, which is quite simply that as a society we spend more than we can afford, publicly and privately.

[dougthonus]

On this board I actually voted yes in principal, but think its a shaky road to go down,

I have not researched all the details. On one hand the rich could easily take on more of the burden, but at the same time it would be devastating to the job market if they just picked up there corporations and left the state.

Fair tax is a little misleading, because even though the highest earners may pay less of a percentage of earnings, They still pay way more in other ways than most of us.

Some incentives in one way or another have to be provided to help keep large corporate businesses in Illinois. If not the common jobs most of us have will suffer.

The ad to vote for this makes me want to punch someone because its so intellectually dishonest.

Make Billionaires pay their fair share:
- Not many Billionaires in Illinois and those can easily avoid taxes through aggressive planning. Whom this will really hit is high skilled professionals like Doctors and Lawyers, not billionaires. This is really a hit on the upper-middle / lower-upper classes most of all, not the true upper class that can afford to avoid taxes through spending.

- 97% of people will have their taxes go down. Holy crap what a steaming load of crap, yes, we lowered your taxes by 1/10th or 1/20th of a percent just so we can say your taxes will go down. It just insults the hell out of me hearing about it. You used to pay $5000 in taxes? Now you pay $4950. Huge savings.

At any rate, its still probably more fair, and if they removed the marriage penalty and tied it to fixing the pension problem so I was sure our extra money put in was temporary because we resolved our idiocy in terms of spending then I would be a strong yes for it instead of a tentative no.

[TheStig]

It's not quite even because our Wars are not as deadly these days but look at a millineals life.

As a child there is a drug, crime and aids epidemic. As a young teen you have the dot com recession, followed a few years later by a 08 financial crisis when you're entering the workforce and takes a decade to recover, giant student loans because everyone needs a degree and now covid recession and pandemic that will linger and possibly a looming civil war and housing crisis all by early to mid 30's. Meanwhile unlike that individual, your wages will not really rise and you're saddled with so much debt unlike any other generation.

There's not really a crime epidemic though compared to other time periods to my knowledge, the number of people that died in the AIDS epidemic (or any medical reasons) is just laughably small compared to medical deaths 100 years ago when you had things like small pox or polio hanging around. The financial crisis was bad, but it has got nothing on the great depression in terms of how long it lasted or its impact.

Whatever our political crisis are now, its hard to put it in comparison to when we were literally scared of nuclear war breaking out and destroying the whole world on a daily basis or McCarthyism in general.

There are real problems for millennials / gen z of course:
1: Most weren't coached well on college and spent 4x as much as they should have and then ended up in bad debt. This was especially bad for the group that got advice from their parents like "just get any degree" because that was great advice 50 years ago when no one had a degree but was awful advice 10-15 years ago when it was still handed out.

2: Less class mobility than in the past, especially if you didn't land in one of the magic careers. Less opportunity for non scholastically bent people to be successful, costs have probably risen about 2-3x compared to minimum wage over the past 30 years, so if you are a basic retail / service worker, your life is lower quality than in the past.

However, compared to problems in the past, the problems we have as a nation now don't seem so threatening. That said, time healed a lot of those problems whereas now our problems feel very systemic. Our political system being run by the wealthy for the wealthy combined with a whole new level of automation makes it increasingly less likely we'll ever have class mobility come back to what it used to be.

Well naturally with the evolution of health care epidemics would get easier. During the Spanish flu they poisoned so many people with overdoses trying to treat it and had no masks like we do. Your example also goes back 2 generations and skips over the greatest generation that missed most of that and has lived a great life. And there was a lot of crime in cities in the 80's and 90's with a big drug epidemic.

I do think #2 combined with the increase of corporate power and union busting has made it incredibly hard to earn a comfortable living like in the past. The middle class has really shrank and will continue to shrink in the future with the structures we put in place. So it is in essence a threat to the American way of life. You've got no one on your side and your disposable. And do I even need to mention the whole gig economy post 2008. Compared to previous generations that had unions, one income earner in a house, a home that continually increased with equity and pensions. Now most Americans don't even have money to survive a surprise $400 bill and own nothing. And lots of those who do live a middle class lifestyle live it on borrowed terms with jumbo mortgages and leased cars and credit cards.

[TheStig]

I think that these giant companies do get bailed out. The issues that got them there build through out the years and then it becomes a boiling point like 2008 and now. Very rarely do these types of things happen to healthy companies. The fact of the matter is that if they were properly managed with reserves, it wouldn't destroy them and they would have contingencies. And that just isn't capitalism. Capitalism is that the strongest survive and grow. If you're bailing out the zombies that had issues going into this, then you're just supporting crony capitalism and the lobbying culture that gets these guys the breaks. What should happen is that a major company will fail and a new or smaller and better thought out one will grow. It's the small companies and people that go under without a real stimulus. It's also small companies that fight on these unlevel playing grounds where they don't get the support and pay heavy taxes. Why does Amazon pay nothing in taxes and your local shoppe pays a good percentage?

There are certainly times this happens, but again, its a very significant minority of times.

I would also note that the state is between a rock and a hard place. They cannot restructure these pension commitments or declare bankruptcy. They really have no out from where they are and it falls on people like us with these $hitty property taxes and taxes. That's why I believe the feds should do something to assist or change the rules. It's great to wag your finger at IL (and I'm not saying you are) but they could have Ted Cruz come in and be Gov and nothing would really change. At this point there is no political solution that they have.

I agree that they are between a rock and a hard place, except that they CAN restructure these pension commitments. They could at least go back and remove all the crappy fake deals they made where people got double salary raises in their last 3 years to add 2 million dollars to their lifetime pension benefits to start with. They could also negotiate this down, and say if you don't agree to something else, we're just not paying at all.

At the very minimum, they could at least stop the bleeding on the problem so it doesn't continue to accrue and get worse. If they did that, then I'd be much more content to put more money into the system (though the massive marriage penalty they created would still piss me off to no end).

I don't think they have the ability to restructure the pensions. I know they went to court trying to do so and lost. I don't know all the particulars but typically those are guaranteed.

[2018C3]

I agree it getting tuff. I once worked with a older guy who told me growing up his family lived comfortably while his dad worked at a local hardware store (Not a owner, just a employee), and his mom stayed at home to raise the children.

This was once the middle class, and times have now changed. The middle class now needs to almost always have two educated wage earners, or at least one parent that makes a good salary.

[InsideInfo]

I think a lot of people who vote yes to this are doing it from a point of view that "rich" people should pay more.

What I don't think they understand is how it affects small business.

My family owns a company that makes about $800k in profit per year on paper. It does not mean there is $800K in cash sitting in the bank at the end of the year. The money gets reinvested over the course of the year back into the business and there is a couple hundred thousand that is always needed in the bank to avoid cashflow problems.. such as paying bills and payroll.

Regardless, my parents who pay themselves about 150K a year in salary are left to pay personal income tax on the profit the business made. Therefore, their personal income goes from 150k to about 950k.

Every April they need to come up with 200-300k to pay their personal tax bill. Often, they must take money out of the company to cover the taxes.

This isn't meant to be some sob story, but I do think this is a story that happens to many people who own small business and it ultimately hurts growth of the company as well as the economy. When taxes when down a couple years ago, my parents used the extra money to offer health insurance to the employees for example.

My parents are being told by the company accountant that this tax hike would raise their taxes about 30k a year on top of what they already pay. I personally have no faith or trust in giving that money to the state.

[2018C3]

Good story, (And may change my initial view).

I myself am a college grad, and for the last 25+ years have worked for corporations at a average salary. I feel I live a good life, but have never considered myself rich. In a single income home, I make less than then the average middle class home median income range, But live comfortably without complaints.

I just drive 10- 15 year old cars, often shop for itens 2nd hand, and live within my means. luxury items are rarely purchased, just what I need.

I have no desire to keep up with others who are more successful in acquiring flashy material items. Living this way I got a decent chunk of land, and also several toys to keep me happy. (House / cool car / boat / Bikes... ext). But most my clothes and other items get purchased at thrift stores. My life has always been about maximizing the purchase power of a dollar.

Before I purchase anything, I try to calculate how many hours I worked for it, and then see if it makes any sense.

[TheStig]

I think a lot of people who vote yes to this are doing it from a point of view that "rich" people should pay more.

What I don't think they understand is how it affects small business.

My family owns a company that makes about $800k in profit per year on paper. It does not mean there is $800K in cash sitting in the bank at the end of the year. The money gets reinvested over the course of the year back into the business and there is a couple hundred thousand that is always needed in the bank to avoid cashflow problems.. such as paying bills and payroll.

Regardless, my parents who pay themselves about 150K a year in salary are left to pay personal income tax on the profit the business made. Therefore, their personal income goes from 150k to about 950k.

Every April they need to come up with 200-300k to pay their personal tax bill. Often, they must take money out of the company to cover the taxes.

This isn't meant to be some sob story, but I do think this is a story that happens to many people who own small business and it ultimately hurts growth of the company as well as the economy. When taxes when down a couple years ago, my parents used the extra money to offer health insurance to the employees for example.

My parents are being told by the company accountant that this tax hike would raise their taxes about 30k a year on top of what they already pay. I personally have no faith or trust in giving that money to the state.

So you're trying to tell me that a couple that makes a 150k a year pays 250-350k in taxes just on the personal side? Something is not addiing up here.

Yes business owners are in essence double taxed as it is business and personal income but your story means they're making 800k and paying that much in tax.

And 800k profit, is after deductions such a depreciation and professional expenditures often including things like cars and phones they benefit and the reinvestment is tax deductible as well. Sp that 800k is indeed after all that and more. Not to mention that 200k in the bank to avoid issues is being counted every year.

[InsideInfo]

I think a lot of people who vote yes to this are doing it from a point of view that "rich" people should pay more.

What I don't think they understand is how it affects small business.

My family owns a company that makes about $800k in profit per year on paper. It does not mean there is $800K in cash sitting in the bank at the end of the year. The money gets reinvested over the course of the year back into the business and there is a couple hundred thousand that is always needed in the bank to avoid cashflow problems.. such as paying bills and payroll.

Regardless, my parents who pay themselves about 150K a year in salary are left to pay personal income tax on the profit the business made. Therefore, their personal income goes from 150k to about 950k.

Every April they need to come up with 200-300k to pay their personal tax bill. Often, they must take money out of the company to cover the taxes.

This isn't meant to be some sob story, but I do think this is a story that happens to many people who own small business and it ultimately hurts growth of the company as well as the economy. When taxes when down a couple years ago, my parents used the extra money to offer health insurance to the employees for example.

My parents are being told by the company accountant that this tax hike would raise their taxes about 30k a year on top of what they already pay. I personally have no faith or trust in giving that money to the state.

So you're trying to tell me that a couple that makes a 150k a year pays 250-350k in taxes just on the personal side? Something is not addiing up here.

Yes business owners are in essence double taxed as it is business and personal income but your story means they're making 800k and paying that much in tax.

And 800k profit, is after deductions such a depreciation and professional expenditures often including things like cars and phones they benefit and the reinvestment is tax deductible as well. Sp that 800k is indeed after all that and more. Not to mention that 200k in the bank to avoid issues is being counted every year.

No disrespect, but I found that really hard to follow and I'm not sure what your point it.

150k in salary + 800k in profit = 950K... that is 950K is what they owe tax on. the first 150k they have tax taken out of their paychecks like anyone else, but the other 800K they owe the money on. 37% or so to federal, plus state taxes. 37% federal tax on 800k is 296K alone.

Another thing that I didn't mention in the OP is that our business invoices our customers and gives them 30 day terms. That leaves us with large amount of money in receivables(money owed to us but not yet paid) Our receivables number is usually between 600-800k.

Keeping in mind needed to have money for cashflow, and all the money in receivables, it takes some planning and budgeting to make sure the massive tax bill is paid.

They also own the building we operate out of...another 65K property tax bill there that gets added on.

My point to all this is that people who say the "rich" need to pay their fair share, are misguided. This kind of tax will hurt small business.

[TheStig]

On this board I actually voted yes in principal, but think its a shaky road to go down,

I have not researched all the details. On one hand the rich could easily take on more of the burden, but at the same time it would be devastating to the job market if they just picked up there corporations and left the state.

Fair tax is a little misleading, because even though the highest earners may pay less of a percentage of earnings, They still pay way more in other ways than most of us.

Some incentives in one way or another have to be provided to help keep large corporate businesses in Illinois. If not the common jobs most of us have will suffer.

The ad to vote for this makes me want to punch someone because its so intellectually dishonest.

Make Billionaires pay their fair share:
- Not many Billionaires in Illinois and those can easily avoid taxes through aggressive planning. Whom this will really hit is high skilled professionals like Doctors and Lawyers, not billionaires. This is really a hit on the upper-middle / lower-upper classes most of all, not the true upper class that can afford to avoid taxes through spending.

- 97% of people will have their taxes go down. Holy crap what a steaming load of crap, yes, we lowered your taxes by 1/10th or 1/20th of a percent just so we can say your taxes will go down. It just insults the hell out of me hearing about it. You used to pay $5000 in taxes? Now you pay $4950. Huge savings.

At any rate, its still probably more fair, and if they removed the marriage penalty and tied it to fixing the pension problem so I was sure our extra money put in was temporary because we resolved our idiocy in terms of spending then I would be a strong yes for it instead of a tentative no.

Considering it will be a small decrease for 97% of the people. I think that's not going to be any middle class people and mainly the upper class. It is 100k agi so after all deductions and exceptions and only the income over 100k will have the increased rate.

I do think it is misleading as you said and the decrease is tiny. I would say that it also starts a bit too low on the income. It should start a little too low.

[2018C3]

I said this before, but instead of taxing the rich to pay for the poor, How about a plan that has no state income tax on households who make less than lets say $30,000 a year. (The actual number could be subjective).

This would allow single family homes, (Often times mothers with Children) to keep more of there income for there family. And also give the younger generation of students a much needed break while trying to achieve success.

A plan like this, would have a greater impact on all the people who need it the most, while encouraging positive growth.

You then also keep corporate interest, and more importantly jobs in Illinois.

People in this situation are not stupid, let them decide how to spend the additional money, and cut out the government overhead that decides how to re-distribute it.

Hell, instead of paying big bucks to government officials to re-distribute funds, Provide state sponsored educational geared daycare facilities for free to lower income family's who choose to take a job. We already have public schools, How about public daycare to give low income parents a much needed break, and also the freedom to succeed so they one day could provide for the family.

That's just one option, I encourage others to think out of the box.

________________________________________________________

I'm sure people will poke and find holes in this idea. If you do please try to present another plan.

[TheStig]

I think a lot of people who vote yes to this are doing it from a point of view that "rich" people should pay more.

What I don't think they understand is how it affects small business.

My family owns a company that makes about $800k in profit per year on paper. It does not mean there is $800K in cash sitting in the bank at the end of the year. The money gets reinvested over the course of the year back into the business and there is a couple hundred thousand that is always needed in the bank to avoid cashflow problems.. such as paying bills and payroll.

Regardless, my parents who pay themselves about 150K a year in salary are left to pay personal income tax on the profit the business made. Therefore, their personal income goes from 150k to about 950k.

Every April they need to come up with 200-300k to pay their personal tax bill. Often, they must take money out of the company to cover the taxes.

This isn't meant to be some sob story, but I do think this is a story that happens to many people who own small business and it ultimately hurts growth of the company as well as the economy. When taxes when down a couple years ago, my parents used the extra money to offer health insurance to the employees for example.

My parents are being told by the company accountant that this tax hike would raise their taxes about 30k a year on top of what they already pay. I personally have no faith or trust in giving that money to the state.

So you're trying to tell me that a couple that makes a 150k a year pays 250-350k in taxes just on the personal side? Something is not addiing up here.

Yes business owners are in essence double taxed as it is business and personal income but your story means they're making 800k and paying that much in tax.

And 800k profit, is after deductions such a depreciation and professional expenditures often including things like cars and phones they benefit and the reinvestment is tax deductible as well. Sp that 800k is indeed after all that and more. Not to mention that 200k in the bank to avoid issues is being counted every year.

No disrespect, but I found that really hard to follow and I'm not sure what your point it.

150k in salary + 800k in profit = 950K... that is 950K is what they owe tax on. the first 150k they have tax taken out of their paychecks like anyone else, but the other 800K they owe the money on. 37% or so to federal, plus state taxes. 37% federal tax on 800k is 296K alone.

Another thing that I didn't mention in the OP is that our business invoices our customers and gives them 30 day terms. That leaves us with large amount of money in receivables(money owed to us but not yet paid) Our receivables number is usually between 600-800k.

Keeping in mind needed to have money for cashflow, and all the money in receivables, it takes some planning and budgeting to make sure the massive tax bill is paid.

They also own the building we operate out of...another 65K property tax bill there that gets added on.

My point to all this is that people who say the "rich" need to pay their fair share, are misguided. This kind of tax will hurt small business.

You're commingling elements. A tax on the profit and property taxes is the business. The property taxes are also included in the profit. And the business income taxes are taken out the large profit and a percentage of it. Whether the money comes slower or faster is really irrelevant and a small bridge. Their is still a giant profit, assets (business and property) and personal benefits like car and phone regular people don't have. Your parents also are sitting on more income and wealth than all the employees.

I've also said previously in this thread, that small businesses are unfairly taxed IMHO. The rates seem to be the highest of anyone. It's the large businesses that get away with murder.

[Almost Retired]

Before voting for a tax increase for anyone take a look around at the states that have much higher tax rates and see if those states are flush with cash. First, New York City. The New York State Income tax rate tops out at 8.82%. The City of New York add its own Income tax with a top rate of 3.876%, so a NYC resident pays a combined rate of 12.69%. The Governor of New York projects a $30 Billion Defecit for the next 2 years. New York city is totally broke (again). Some of that is Covid related. I will grant that. But both the state and the City of New York were in deficit before Covid, even with tax rates more than twice that of Illinois. Higher taxes never balance ever higher spending. It is a chase the taxpayers never win. Luckily New York state's public pension were far better funded prior to Covid. But the Comptroller has warned that due to all the Covid related early retirements and poor fund performance that trouble is coming.

Moving on to California. Their top marginal tax rate is 13.3%, and a proposed new tax bill (AB 1253) if passed would raise the top rate to 16.8%. FOR STATE TAX !! California pensions are funded at @ 68% but Covid is going to take its toll there too. (Illinois is the 3d worst State for Pension funding at 38%, only Kentucky and New Jersey are worse.) In the latest budge cycle California had a $54 Billion Dollar deficit. They have over $1 Trillion in unfunded pension obligations. They can't make ends meet even with the highest tax rates in America. Why? Because politicians all suffer from the same affliction. If you give them $10 Dollars of tax money to spend they will spend $12. Republican, Democrat, doesn't matter. There are very few politicians that can live within the means that their taxpaying constituents can bear.

So I have no dog in this hunt. But looking around the country it doesn't seem that high tax rates make much of a difference. You could vote for the graduated tax, the politicians will at some point raise and raise the rate on the "rich", yet the State will always be in the Red. Because Illinois has a corruption problem and a spending problem. Giving the same politicians more money will not solve the problems of Illinois. It will just drive more businesses and well off taxpayers to leave for Texas and Florida where we enjoy no income taxes.

[dougthonus]

Considering it will be a small decrease for 97% of the people. I think that's not going to be any middle class people and mainly the upper class. It is 100k agi so after all deductions and exceptions and only the income over 100k will have the increased rate.

I do think it is misleading as you said and the decrease is tiny. I would say that it also starts a bit too low on the income. It should start a little too low.

Probably apples and oranges based on definitions. In the Chicago area, I'd generally view you as upper middle class if you're between about 200-300k in earnings and lower-upper from about 300-500k, but I don't know if there is a standard definition. Where you live makes a pretty big difference though, 200k a year in Huntley is a lot different than 200k a year in the city.

Maybe all my close friends are just wealthy, but almost all are two income families where I would guess that their combined income is between 200-300k. These are mostly people with just normal bachelors degrees that are 20 years in their career and probably one is a low rung manager and the other is a senior individual contributor, but we're talking about people in HR, Architects, Project management, real estate agent, computer programmers, environmental engineers, business degrees, nurses, teachers, and not doctors/lawyers/investment bankers or whatever other types of careers you view as super valuable (though I have a few of those, but those people are generally wealthy to my view).

Most of these people I'd project out to be 200k-300k a year earners have 2500ish sq foot houses, nothing I'd view as too huge, live in nice, but not anywhere near the nicest areas around them, have money to save for retirement and college for their kids etc...

But as an example, they don't fly first class, blow 20k on vacations, own multiple homes, boats, sports cars (or other show cars tehy don't drive) etc...

From lifestyle, that still strikes me as pretty straight up middle class, just with more cushion to fall back on.

[dougthonus]

No disrespect, but I found that really hard to follow and I'm not sure what your point it.

150k in salary + 800k in profit = 950K... that is 950K is what they owe tax on. the first 150k they have tax taken out of their paychecks like anyone else, but the other 800K they owe the money on. 37% or so to federal, plus state taxes. 37% federal tax on 800k is 296K alone.

Another thing that I didn't mention in the OP is that our business invoices our customers and gives them 30 day terms. That leaves us with large amount of money in receivables(money owed to us but not yet paid) Our receivables number is usually between 600-800k.

Keeping in mind needed to have money for cashflow, and all the money in receivables, it takes some planning and budgeting to make sure the massive tax bill is paid.

They also own the building we operate out of...another 65K property tax bill there that gets added on.

My point to all this is that people who say the "rich" need to pay their fair share, are misguided. This kind of tax will hurt small business.

It sounds like your parents should incorporate immediately if that is true (or go to a full corporation rather than S corp). The corporate income tax rate is 21% and much lower than 37% fed rate you're quoting. Corporate tax rate is also different from this fair tax act at the state level but is expected to go up 1% or so.

Also, they have to pay taxes quarterly, and of course there is planning issues in terms of saving money for tax bills that are due, but typically you make estimated payments based on last years taxes and have to keep the money out. In terms of receivables vs cash, there are multiple accounting strategies you can choose on how to handle this and when you recognize the money.

There are strengths and weaknesses to each, but you could pick one where you don't recognize it until you collect vs one where you recognize it at time of sale (though this generally isn't done by most businesses) because you can also deduct costs at time of booking but not time of payment, so most people book costs/sales at the time made not the time paid/collected.

Without digging in two deep into your parents finances based on your post, my guess is if they are making that much money they have hopefully hired a worthwhile tax advisor/accountant to help them set all this stuff up well, if not, they should, because they could save a ton of money if they are making mistakes there.

Either way, if their business turns 800k a year in profits, that's amazing, and even if they invest the profits in the business to grow it, they're still making that much profit, they're just reinvesting it and building equity (and if they're truly reinvesting, then they aren't actually recognizing those profits because they will be raising capital expenses, at the point where its really profits that means its going into corporate accounts, dividends, etc rather than reinvestment).

This isn't to say your parents won't be hurt by this bill, but if their business is turning an 800k a year profit then they are pretty wealthy and not just small business owners. The business may be small, but that is a ton of money to make if you own the whole thing and probably closer to a mid size business in terms of profit. Granted if you made 800k in one killer year due to exceptional circumstances and your norm is a lot less that might be totally different.

[League Circles]

I think a lot of people who vote yes to this are doing it from a point of view that "rich" people should pay more.

What I don't think they understand is how it affects small business.

My family owns a company that makes about $800k in profit per year on paper. It does not mean there is $800K in cash sitting in the bank at the end of the year. The money gets reinvested over the course of the year back into the business and there is a couple hundred thousand that is always needed in the bank to avoid cashflow problems.. such as paying bills and payroll.

Regardless, my parents who pay themselves about 150K a year in salary are left to pay personal income tax on the profit the business made. Therefore, their personal income goes from 150k to about 950k.

Every April they need to come up with 200-300k to pay their personal tax bill. Often, they must take money out of the company to cover the taxes.

This isn't meant to be some sob story, but I do think this is a story that happens to many people who own small business and it ultimately hurts growth of the company as well as the economy. When taxes when down a couple years ago, my parents used the extra money to offer health insurance to the employees for example.

My parents are being told by the company accountant that this tax hike would raise their taxes about 30k a year on top of what they already pay. I personally have no faith or trust in giving that money to the state.

I may be speaking out of pure ignorance here so please forgive me if my questions are just out right wrong. You say that much of the on paper profit of the business is actually reinvested in the business. What is preventing them from writing that reinvestment off as a legit business expense?

Are or were there other options in terms of how to structure the business entity so as to not incur personal income taxes by the profits?

I would think that the 200 Grand in spare capital to meet rolling expenses would not be reflected in yearly profit if it's a static thing .

I'm not trying to expose you as having misled anyone but more so trying to learn how things actually work for small businesses.

[TheStig]

Considering it will be a small decrease for 97% of the people. I think that's not going to be any middle class people and mainly the upper class. It is 100k agi so after all deductions and exceptions and only the income over 100k will have the increased rate.

I do think it is misleading as you said and the decrease is tiny. I would say that it also starts a bit too low on the income. It should start a little too low.

Probably apples and oranges based on definitions. In the Chicago area, I'd generally view you as upper middle class if you're between about 200-300k in earnings and lower-upper from about 300-500k, but I don't know if there is a standard definition. Where you live makes a pretty big difference though, 200k a year in Huntley is a lot different than 200k a year in the city.

Maybe all my close friends are just wealthy, but almost all are two income families where I would guess that their combined income is between 200-300k. These are mostly people with just normal bachelors degrees that are 20 years in their career and probably one is a low rung manager and the other is a senior individual contributor, but we're talking about people in HR, Architects, Project management, real estate agent, computer programmers, environmental engineers, business degrees, nurses, teachers, and not doctors/lawyers/investment bankers or whatever other types of careers you view as super valuable (though I have a few of those, but those people are generally wealthy to my view).

Most of these people I'd project out to be 200k-300k a year earners have 2500ish sq foot houses, nothing I'd view as too huge, live in nice, but not anywhere near the nicest areas around them, have money to save for retirement and college for their kids etc...

But as an example, they don't fly first class, blow 20k on vacations, own multiple homes, boats, sports cars (or other show cars tehy don't drive) etc...

From lifestyle, that still strikes me as pretty straight up middle class, just with more cushion to fall back on.

Sounds like they're good with their money and careers. Not all millionaires fly first class and drive new Mercedes.

But that's still the 93% percentile for IL at the lower level of 200k. It's about 3x the average income.

Illinois Income Statistics
The following data are the most current income statistics for Illinois from the US Census Bureau, are in 2018 inflation adjusted dollars and are from the American Community Survey 2018 5-year estimates.

Median Household Income: $63,575.
Average Household Income: $88,857.
Per Capita Income: $34,463.
7.6% of Households in Illinois are High Income Households that make over $200,000 a year.

[TheStig]

I think a lot of people who vote yes to this are doing it from a point of view that "rich" people should pay more.

What I don't think they understand is how it affects small business.

My family owns a company that makes about $800k in profit per year on paper. It does not mean there is $800K in cash sitting in the bank at the end of the year. The money gets reinvested over the course of the year back into the business and there is a couple hundred thousand that is always needed in the bank to avoid cashflow problems.. such as paying bills and payroll.

Regardless, my parents who pay themselves about 150K a year in salary are left to pay personal income tax on the profit the business made. Therefore, their personal income goes from 150k to about 950k.

Every April they need to come up with 200-300k to pay their personal tax bill. Often, they must take money out of the company to cover the taxes.

This isn't meant to be some sob story, but I do think this is a story that happens to many people who own small business and it ultimately hurts growth of the company as well as the economy. When taxes when down a couple years ago, my parents used the extra money to offer health insurance to the employees for example.

My parents are being told by the company accountant that this tax hike would raise their taxes about 30k a year on top of what they already pay. I personally have no faith or trust in giving that money to the state.

I may be speaking out of pure ignorance here so please forgive me if my questions are just out right wrong. You say that much of the on paper profit of the business is actually reinvested in the business. What is preventing them from writing that reinvestment off as a legit business expense?

Are or were there other options in terms of how to structure the business entity so as to not incur personal income taxes by the profits?

I would think that the 200 Grand in spare capital to meet rolling expenses would not be reflected in yearly profit if it's a static thing .

I'm not trying to expose you as having misled anyone but more so trying to learn how things actually work for small businesses.

Frankly, I think the kid is speaking out of ignorance from something his father might have been complaining about at the dinner table. He hardly sounds like he has access to the books. Not trying to be rude but we're trying to guess why does the business pay so much tax from scraps of scraps.

[dougthonus]

Sounds like they're good with their money and careers. Not all millionaires fly first class and drive new Mercedes.

But that's still the 93% percentile for IL at the lower level of 200k. It's about 3x the average income.

Illinois Income Statistics
The following data are the most current income statistics for Illinois from the US Census Bureau, are in 2018 inflation adjusted dollars and are from the American Community Survey 2018 5-year estimates.

Median Household Income: $63,575.
Average Household Income: $88,857.
Per Capita Income: $34,463.
7.6% of Households in Illinois are High Income Households that make over $200,000 a year.

Gets into a lot of semantics here really, but median/average is middle statistically, but not what I view as middle class, and this is what I mean when I say the middle class is shrinking. By the definition of averages/median it can't shrink, it can just have less.

I tend to view it as "what can you do". To me middle class is you generally don't have financial worry and have enough to do all the things you need to do with some cushion but you still have to devote more or less all your resources to savings/living with the occasional extravagance. Upper-middle class is where you do that but have nicer/higher quality things. Lower middle class is where you can do that, but you're cutting corners everywhere.

Upper class is where you have taken care of all the necessities and still have a lot of money left over and can now blow money on whatever because you have so much of it. Money no longer really needs to be a concern (though mentally many wealthy people always make it one anyway). You simply have enough and doesn't need to be a factor in your decision making anymore except at extreme levels (like you may not be flying private jets or buying 10 million dollar homes or whatever, but you don't flinch at 1st class or whether to drop 20k on a vacation, and obviously the upper upper class is doing the private jet / million+ homes).

[TheStig]

Sounds like they're good with their money and careers. Not all millionaires fly first class and drive new Mercedes.

But that's still the 93% percentile for IL at the lower level of 200k. It's about 3x the average income.

Illinois Income Statistics
The following data are the most current income statistics for Illinois from the US Census Bureau, are in 2018 inflation adjusted dollars and are from the American Community Survey 2018 5-year estimates.

Median Household Income: $63,575.
Average Household Income: $88,857.
Per Capita Income: $34,463.
7.6% of Households in Illinois are High Income Households that make over $200,000 a year.

Gets into a lot of semantics here really, but median/average is middle statistically, but not what I view as middle class, and this is what I mean when I say the middle class is shrinking. By the definition of averages/median it can't shrink, it can just have less.

I tend to view it as "what can you do". To me middle class is you generally don't have financial worry and have enough to do all the things you need to do with some cushion but you still have to devote more or less all your resources to savings/living with the occasional extravagance. Upper-middle class is where you do that but have nicer/higher quality things. Lower middle class is where you can do that, but you're cutting corners everywhere.

Upper class is where you have taken care of all the necessities and still have a lot of money left over and can now blow money on whatever because you have so much of it. Money no longer really needs to be a concern (though mentally many wealthy people always make it one anyway). You simply have enough and doesn't need to be a factor in your decision making anymore except at extreme levels (like you may not be flying private jets or buying 10 million dollar homes or whatever, but you don't flinch at 1st class or whether to drop 20k on a vacation, and obviously the upper upper class is doing the private jet / million+ homes).

I think we're getting into semantics because all of this is open to interpretation. That's why I posted the numbers. 200k is the 93rd percentile. It's not middle class. That's clearly upper class in IL. People just have different priorities but someone making 200k for more than a couple of years likely has a net worth north of a million dollars. Which is also well above average.