I Though Mitt Romney Understood Taxes and Mathematics - Guess I Was Wrong [146]




I THOUGHT MITT ROMNEY UNDERSTOOD how taxes and hiring and profits all worked together. But, after listening to his stump speech recently, I get the distinct impression he really doesn't; nor does he have a good grasp of his statistics either. Anyway, when I heard his speech, I thought of another way to debunk his assertions, so I am dashing off this hub in response.

The first assertion Romney made was that most small business owners pay their taxes as individuals, probably true. His next assertion was that most small business owners would therefore be impacted by Obama's desire to increase the top marginal tax rate by 5% from 35% to 40%, not quite the right percentages, but close enough for government work. This is definitely not the truth! For this assertion to be true, one must assume that most small business owners earn more than $250,000 from their businesses which they claim on a Schedule C or Schedule K-1; and remember, this has to be large enough to leave more than $250,000 after it has been reduced by all of the deductions and the resulting taxes reduced by any tax credits.

Now, how likely is it that a small business owner is going to be able to show an adjusted gross income of more than $250,000 to start with? NOT VERY LIKELY, FOLKS! A small business is generally classified as a business with less than 500 employees; do you know how many of those there are? Around 5.7 million. Considering a business with that many employees, you would think a lot of them could easily net over $250,000 for its owner or owners; and you would be right, except that there are only 600,000 companies with 20 - 500 employees; not so impressive now, is it?

But hey, many companies with 20 people can earn $250,000 for their proprietors, correct? Probably so, if most of the remaining companies had 20 employees . Problem is again, there are only 1.6 million businesses with 5 - 20 employees, mostly at the lower range. The other 3 million or so companies have between 0 and 4 employees, and I bet your bottom dollar, very few of them have net profits over $250,000!

So, what are we left with? A candidate for president who doesn't have a clue as to what he is talking about relative to his statistics.

Now, let's suppose he was right on that point anyway; how about his business acumen?

In business, there is a measure called Return on Assets, or your ROA, it measures how well a company is using its assets (of which an employee is one) and is figured by dividing total net profit by total assets. So, if you had total profits of $250,000 and assets of $1.25 million your ROA would be 20%, not an unreasonable nor an unobtainable number. Hold that thought.

Romney's next assertion is that because of Obama's dastardly tax hike on the poor rich people, they will be disincentivized to hire anybody because it will cost them too much in taxes!! That is his main stump speech line and the drumbbeat message from the conservatives since Day One. I really worry about his(their) ability to understand simple math and how a business operates, I really do. Now back to my numbers, sorry.

Let us say our poor businessman or woman hires, against their better judgement because it is going to cost them so much in taxes in the end, an efficient worker whose gross cost to the business is $50,000/year. Given the company's ROA, she/he would expect to earn an additional $10,000 in net profit. Since she/he files his/her taxes individually, then he/she may or may not be taxed on that additional $10,000. IT ALL DEPENDS ON WHAT THEY DO WITH THE MONEY, don't you see. Romney assumes it is a forgone conclusion they will do nothing with it, put it in a mattress or spend it friviously or something, which of course, is two of their options, but nevertheless is a rather presumptuous assumption on his part, don't you think. Let's say they do just as Romney assumes, instead of investing it in a munucipal bond which helps a community and pays tax-free interest. What happens then?

Well, they get taxed at the 35% rate which they always have, so there goes $3,500. No difference there. BUT, HERE IS ROMNEY AND THE CONSERVATIVE'S HEARTBURN, the aspect of the increase in the tax hike on the wealthy that is going to kill all possibility of any job increases, especially of our poor business person in the example, is that they will pay an additional $500 as well!!!! OMG the sky is falling!

The bottom line of Romney's reasoning is that in order to not pay that extra $500 in taxes, the small business owner will refuse to hire the $50,000 employee and earn a net $6,000 in spending money. That is Romney math for you, lol.

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Comments 19 comments

Bob Zermop profile image

Bob Zermop 4 years ago from California, USA

Good hub. I'm not an economist, but I can see some fallacies in Romney's reasoning! Thank you for explaining it so clearly.

Dr Billy Kidd profile image

Dr Billy Kidd 4 years ago from Sydney, Australia

That's interesting. With my business, a U.S. LLC, it could make $5 billion in profits but there would be no taxes. The tax is only on what I take out of it and pay myself. The business can pay half the expenses for my world tours or for the computer I'm writing on, too.

It's only 5% of the small businesses where the owner pays him or herself more than $250,000. And, under Obama, those folks are paying the least amount that's been paid since 1958.

I'm worried that Romney, in his inability to understand small business, will bankrupt those of us who survived the Great Recession. I have complete confidence, however, that the Fortune 500 companies will double their profits under Romney. My advice to small business people is to get a job with a very big firm.

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Thanks Bob, you don't need to be to understand the lies Romney is putting forward. You just need to step back and parse what he says a bit to see if passes the reasonableness test and then put a few questions to Wikipedia, which I did for that hub regarding the number of small businesses; I had a rough idea from previous hubs but needed more exact numbers. After that, it is logic. Does he pass the logic test?

Yes, I know what you mean, Dr Billy. My business grosses over $5 million annually but my two partners and I don't come close to the $250,000 mark, our employee count is in the 30 - 35 range, depending. although we do manage about 200 independent contractors, so I probably ought to count those (now you know where most of that $5 mil goes).

No doubt you are right about Romney's inability to understand small business, he has no experience in that arena and it is an entirely different ballgame in down in the weeds from that in the stratosphere where he plays.

Charles James profile image

Charles James 4 years ago from Yorkshire, UK

Excellent hub. Utterly clear!

Shyron E Shenko profile image

Shyron E Shenko 4 years ago

From Romney's/his puppeteers ubiquitous lies, he/they evidnetly don't care about the math as long as it adds more money to his coffers.

Good hub.

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Lol, thanks, Shyron.

albertcamus27 profile image

albertcamus27 4 years ago from Santa Monica, CA

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Great hub, Albert, thanks for posting it here.

Shyron E Shenko profile image

Shyron E Shenko 4 years ago

Great hub, very informative.

I don't think math is the only equation Mr. Romney doesn't understand.

An excellent read. Even for the second time.

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Thanks, Shyron.

Trusty9213 4 years ago

What about Obama's Math in the health care bill? What about Obama's math when it comes to spending 4 billion dollars more than he takes in (every day)? How long will it take America to get to bankruptcy spending 4 billion per day more than it takes in? What kind of math is that? That is 28 billion more debt every week. Now asking these questions is not an endorsement of Romney's math or his campaign. He was not my first choice at all. The Bush administration spent way too much money as well and that was not right either. You cannot have it both ways. Spending too much money will bankrupt the country no matter if an administration has an R or a D behind its name.

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Thanks for your comment Trusty. Have you asked yourself why Obama has been forced to spend $4 billion a day? What sort of realistic answers do you get?

BTW, I just got an e-mail from my health insurance which is giving my company and my workers an almost $700 rebate specifically as a result of Obamacare. Also, my premiums at the beginning of 2012 went DOWN 10%, saving my company about $6,000 and my employees about $1,200 (total); now, I like that math, wouldn't you.

trusty9213 4 years ago

My Esoteric,

Your not going to like the math when your health insurance goes out of business and shifts you to the awful heath care plan that nobody read before they passed it. Obama is not being forced to spend 4 billion per day more than they take in. He is doing because he believes that is the way to get reelected. Every thing he does right now is to get reelected. From gutting the 1996 welfare bill signed by Bill Clinton (by executive order). 63% of the entire federal budget is spent on entitlement programs. I am not saying that all entitlement programs are unneeded. But it is pure and simple income redistribution. Taking from the working sector to give to the growing nonworking sector. We are going bankrupt. Does it matter why a country goes bankrupt? If it is bankrupt, it is bankrupt. What will health insurance be to you then? What will peoples entitlement checks mean to them then? They are printing trillions of dollars devaluing our money. Obama is absolutely tearing our Constitution apart piece by piece. Circumventing Congress every chance he gets. What is all this spending got us? 1% economic growth. Is that acceptable to anyone?

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Well, 1% economic growth (it is actually about 2 - 2.5%, but whose counting) is a whole lot better than the 5.1% economic decline conservative economics brought us, wouldn't you say? Also, don't you think that a 1% growth rate isn't bad considering the relatively successful effort the conservatives have mounted to stop Obama from succeeding in moving the country forward? Isn't it rational to believe that for the conservatives to fulfill their promise to make Obama a one-term President, it "requires" them to stop the economy from growing? Well, according to you, the conservatives did a damn fine job of doing just that.

Go back to your history books. Presidents don't sign legislative bills by "executive order"; they simply sign bills passed by both Houses of Congress (conservative ones in the case) into law or he/she vetos them.

Finally, given the Obamacare individual mandate is Constitutional, why would you think any insurance company would go out of business? That mandate just required millions of healthy people to buy insurance that otherwise wouldn't have and that is exactly what the insurance companies wanted in the first place.

mp2525 profile image

mp2525 4 years ago from Los Angeles

Nicely done. One more reason NOT to vote for Romney.

peanutroaster profile image

peanutroaster 4 years ago from New England

Romney believes in piss down approach to economics. After the rich have eaten their fill, they'll toss their bones down to the middle class and poor. The Brookings Institute just released a report showing that Romney's plan does nothing but further fill the pockets of the 1% at the the expense of the eroding middle class. Who do they think buys stuff? No surprise Romney and the GOP represents nothing new and a step backwards to the same kind of thinking that created the recession.

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Thanks, Peantroaster. And before anyone goes off saying the report is biased because one of the economists used to work for Obama, know that another of the economists putting together the report worked for Bush.

peanutroaster profile image

peanutroaster 4 years ago from New England

Even if you're one of those people who still believe they could one day be one of the rich/elites (I don't own a gun but someday I might so I'll back the NRA - type mentality), you'd have to think about what kind of world you want to live in. Do you really just want to live in a gated community where outside the gates people are so desperate that they want to rob you? A strong middle class works for everyone. Interesting how now Romney has adopted some kind of "I'm for the middle class" language in his stump speech. Give me a break. The reality is that the GOP is for the status quote which means the rich get richer at the expense of the middle class, the economy, women's rights, voters rights etc.

My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

True, true. You might be interested in the massive dialogue going on between me and a couple of Conservative women (I guess) in my hub, http://myesoteric.hubpages.com/hub/Here-is-What-Co... I could use the company.

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