Reader reaction to this reaction to the congressman's infamous quote instantly flooded the in-tray. One reader summarizes the basic argument of dozens:
While I agree it is unfortunate that the whole quote was not provided, I would still like to point out that the tax rate shouldn't affect Fleming's investment decision. He only pays tax on his profit. If he uses the remaining $400k to reinvest into his businesses, he doesn't pay an income tax, as that is a business expenditure. In fact, a higher tax rate would give him more incentive to invest, as to avoid paying taxes. A lower tax rate would give him more incentive to pay the low tax and keep the cash. That's part of the reason why we have had larger growth in times of high marginal tax rates.
Another writes:
I should point out that Obama's "Buffet Rule" wouldn’t apply to Fleming, since his net income is <$1,000,000. And even when the Bush tax cuts expire, his additional tax burden will be, at most, $25K-$30K on $600K of income – hardly a debilitating hardship worthy of postponing capital investment plans.
Another:
Your reader is quick to defend Fleming, but "feeding his family?" Please. Fleming's youngest child is 21, and his oldest in 32; I really hope by now they can feed themselves. It's fine if Fleming wants to spend the money he earned on what he wants, but rhetorically positioning himself as a noble provider of a hungry brood of children is simply disingenuous.
Another:
For someone who is quick to dismiss the reporter interviewing Fleming as "economically illiterate," the responding reader was tax-code illiterate himself.
Each of the praiseworthy activities listed ("invest in new locations, upgrade my locations, buy more equipment") are either operating expenses, in which case the money on them is not taxed at all, or capital investments, which are subject to a variety of extremely lenient tax treatments (accelerated deductions, Section 179 write-offs, etc.).
No one is "fixated on the idea that he doesn't deserve more money from his hard work and capital investment"; that's just flag-waving rhetoric. The enormous infrastructure that allows businesses (including my own) to thrive has costs, and we have not been paying those costs for a decade now. Instead, we've preferred to pretend we could operate the government on credit forever. The loan has come due, and we need to pay it.
Many readers made calculations along these lines:
I don't have access to Rep. Fleming's balance sheets, but if he makes a gross of $6.4 million on his businesses, pays all his expenses (rent, utilities, franchise fees, etc) and pays his employees from that same $6.4 million, has 500 employees and has $400,000 after taxes to improve and reinvest, that means the following:
1. His total expenses (including his salary), come to roughly $6 million, per his own math.
2. Franchise fees will cut, which online figures put at 8% of gross revenue, so that's $512,000
3. He pays for rent, utilities, etc, and nominally let's say that's 40% of the gross (that's just a guess) or $2,560,000.
4. That leaves just under $3 million that goes to salaries, employee benefits (which they probably don't get), FICA, payroll taxes, etc.
5. He says he employs 500 people.
6. That means that the average salary of someone working at his Louisiana Subway restaurant is some number less than $5868 (because I havent' included the payroll taxes he has to pay on these folks).
7. Last time I checked, even in Louisiana, $5868 wasn't a living wage.My conclusion is that either he's exaggerating how many employees he has so that he looks like a "job creator" hero, or he has no idea what his businesses really make.
Another analysis worth noting:
As the "token liberal" in my MBA class (I'm actually pretty conservative fiscally), I thought I'd chime in on this one. Fair comment by your "economically literate" reader regarding Fleming's business metrics in terms of gross vs. net revenue. However, his correction omitted a few other economic realities of Fleming's comments/situation:
1. Reader fails to point out that Fleming has an appreciating asset that, if sold, would likely yield a 3-5X multiple on net cash flows, which would be taxed at a much-lower long-term capital gains rate of 15%. This is the inherent principle of the "Buffet Rule" – rich people can leverage assets to game the tax system in ways poor people simply cant.
2. If he did re-invest the $400K, there's no way Fleming would report that as taxable net income. Instead, it would go back into the business as FFE or CAPEX, which can help to defer taxes as well.
3. In addition, as the reader probably knows, Fleming enjoys significant tax benefits in the form of expenses, probably writing off or depreciating at least some portion of his cars, real-estate, utilities, dinners, etc.
4. Reader also implies Fleming deserves more for his "hard work": I'd argue it's the people slinging sandwiches for $7/hr that are working hard, especially given that it only takes simple math to see the average salary of his employees is under $10K/year, at best. If anything, shouldn’t he be working hard at his "other job", you know, representing the constituency that elected him?
5. And unless he has twenty obese children, it's hard to give any credibility/sympathy to Fleming's choice of words about "feeding his family", especially when you add his $174K congressional salary to the $200K he spent on food for the kids.
Does a job-generating business operating at 10% net margins deserve them? Absolutely. Did the media over-react to his flub? Of course. But, are Fleming (and the Tea/Republican Party) completely out of touch with economic reality of most Americans? You betcha.
Another:
Ugh. Can we please not treat Rep. Fleming's interview as if it were a cogent policy debate? The man is clearly pulling numbers from thin air, so trying to parse through his interview and decide if he "doesn't deserve more money from his hard work and capital investment" is a complete waste of time. Spitballed numbers do not tax policy make. To say nothing of the fact that since he's firmly against the President's proposal, he probably isn't being completely honest in his appraisal of his finances.
One more reader:
In short, Fleming's personal tax rate does not impede his company's ability to invest and expand. If he has to take a little more money out of the business to maintain a $774,000 annual lifestyle (including his congressional salary, of course) with a slightly higher personal tax rate, I would suggest that some mild personal austerity might be in order.
The Dish 