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Romney claims to believe, and wants everyone else to believe, that increasing taxes on "job creators" will keep them from hiring people.  (Ryan and other Congressional Republicans say the same.) That this is complete and utter horseshit is easily shown.

First, some background:  Romney focuses on businesses classified, for taxation, as "S corporations."  (Such businesses can be of any size; for Romney they're always "small business.")  S corporations file income-tax returns, but don't themselves pay income tax. Instead, they allocate their net income to their shareholders, or owners, who report it on their individual returns, along with whatever income they have.  Tax rates for individuals will go up when the Bush tax cuts expire at the end of this year, so these owners may, on the same amount of income, pay more tax next year than they're paying now.  If Congress does nothing, the highest rate, applying to income above $388,350, will increase from 35 percent to 39.6 percent.  The next highest rate, applying (for joint filers) to income between $217,450 and and $388,350, will rise from 33 percent to 36 percent.  Lower rates apply, in various brackets, to amounts of income below $217,450, and most of those rates will also increase.  Obama talks of preserving the Bush rates for the first $250,000 of income and letting them expire for income above that amount.  That way, the pending rate increases would apply to all taxpayers with income in the highest bracket and some taxpayers in the next-to-highest bracket (namely, those with taxable incomes of between $250,000 and $388,350), but not to anyone else.

That's the background, which I admit is pretty boring.  To read the fun part, please turn the page.

To keep things simple, let's suppose our heroic "job creator" -- we'll call him Jack (short for Jackass) -- is the sole owner of an S corporation.  It employs twenty people, not counting Jack himself.  Gross revenues this year are $1,500,000. Jack pays the twenty employees an average of $40,000 apiece, for a total of $800,000.  He pays himself $100,000 and has other business expenses of $100,000.  The firm's net income is accordingly $500,000 ($1,500,000 less $800,000 less $100,000 less $100,000).  Jack pockets the $500,000, of course, and it appears as an item of income on his personal tax return -- along with his salary and all his other income.  As far as Jack can tell, if he does what he's doing now next year, the business will again have a net income of $500,000.

Now, to keep things really simple, let's suppose that Jack and Jenny, his wife, together have more than $388,350 in taxable income apart from the $500,000 in income from Jack's S corporation.  There's Jack's $100,000 salary, for one thing.  The rest might come from investments, Jenny's employment, the lottery, a trust established by his or her parents, whatever.  They'd have all that income whether or not the business made money or (except for Jack's salary) even existed.  Income from the S corporation, then, is income on top of all that other income -- and therefore guaranteed to be taxed at the top rate (35 percent this year, 39.6 percent next year).  On the $500,000 earned this year and projected for next year, then, Jack and Jenny will go from paying tax of $175,000 (35 percent) to paying tax of $198,000 (39.6 percent).  An increase of $23,000; cue the violins.

Jack thinks:  Demand for my products seems pretty strong right now.  Maybe I should expand.  I could hire ten more people, shell out a bit to support their activities....  Ten people at $40,000 apiece would be $400,000.  I'd probably have $100,000 in related expenses, so the whole thing would cost me $500,000.  Yikes! That's the entire amount of my net profit for 2012.  If it worked out, though, it could bring in another $750,000 in gross revenue, leaving me $250,000 per year better off ($750,000 less $400,000 less $100,000).  Of course, it might not work out -- but, what the hell, you only live once.  Besides, I'd feel virtuous, even heroic.  It would do wonders for my "job creator" cred: the masses would abase themselves before me, overcome by my sheer awesomeness.

So, um, I'd sure like to hire those new workers -- but, golly gee, how can I do that if my taxes are about to go up?!  Or if they even just might go up?!  Oh, the uncertainty!!  I suddenly lack business confidence!  I guess I'd better forget the whole thing and go back to browbeating my existing employees into voting for Romney.

Now, as promised, here's why this line of "thought" is total horseshit:

We're looking at $500,000 in available funds, or just enough to do what Jack had in mind.  The Republican line is this: The more you tax that money, the less of it remains to use for "job creation."  Let's pass over the fact that the pending tax increase ($23,000 on $500,000) is chicken feed.  The mistake lies in assuming that the money would be taxed at all.  There are two scenarios here:

          (1) Jack doesn't expand.  In that case, the business has a net income of $500,000 per year, taxed a bit more heavily next year than this ($175,000 this year, $198,000 next year).  "After tax," Jack's personal coffers swell by $325,000 this year ($500,000 less $175,000) and $302,000 next year ($500,000 less $198,000).

          (2) Jack does expand.  In that case, the $500,000, expended on salaries and other business expenses, isn't taxed at all.  That's because these new expenses are deductible in determining the business's net income.  If no additional revenue showed up in 2013, the business would have a net income of exactly zero (the $500,000 it was going to have anyway less the $500,000 in new expenses), and Jack would have no S-corporation income to report and pay tax on.  The business would have a positive net income only to the extent new revenues appeared as a result of the expansion.

Ergo, in case (2), no nasty taxes would get in the way of Jack's leap into the unknown.  If Jack thinks otherwise, instead of just pretending to when asked by cooperative political reporters, he's full of shit.

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