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Mon Jul 14, 2014, 04:48 PM

We're trying to fix the Hobby Lobby decision the wrong way

Attempting not to sound too lawyerly here, let's try this:

One of the things you've got to decide when you set up a business is its "form." There are five, and the one you choose determines three things: who will be liable for claims against the business, the number of owners the business can have, and whether the business or the owner will be liable for taxes.

The classic "mom and pop" is a Sole Proprietorship. One person, or a married couple, owns the company and taxes are paid on that person's individual income tax form.

"Johnson Brothers Plumbing" is a Partnership. To set one up, they'll hire a lawyer and execute a Partnership Agreement that stipulates the percentage of the business each of the four Johnson brothers owns, which also sets the percentage of the profits each brother will be paid. Taxes are paid the same way sole proprietorships' taxes are: as individual income.

Of course, when the Johnsons go to the lawyer the first thing the barrister will do is to beat them all unconscious for even thinking of setting up a partnership. Sole proprietorships and partnerships have one huge drawback: all liability falls onto the owners. If Eddie Johnson installs an underground sprinkler with a defective backflow preventer and herbicide makes its way into the city water system, everyone in the partnership could lose everything they have. When and if they wake up, the lawyer will convince them to create a Limited Liability Company - which has the same tax treatment as the first two forms of business, but gives some separation between their business and personal affairs.

For extra separation between you and your business, you incorporate. This structure forms a "corpus" - a person on paper - that owns the business. (The Citizens United ruling was an outrage not because it created corporate personhood - corporations have been people ever since there were corporations, my friend - but because it decided the corporate person had the same rights a natural person did. That is an outrage and needs to be reined in, but it's not what we're here for today.) Unless your corporation commits a major atrocity, any liability falls onto this corpus. By "major" I mean REALLY major - McDonald's sold Stella Liebeck a cup of coffee hot enough to boil a sixth of the skin off her body, but at no time was there ever thought given to sending postcards to all their shareholders: "We got sued for selling coffee hot enough to melt pig iron and lost, and part of the settlement is your responsibility; stick four cents in an envelope and mail it in before Friday."

The problem with the corporation form, for small business people who might want to protect themselves, is taxation: it's a flat 35 percent on all business profits. To allow "two guys and a backhoe" companies to incorporate the IRS created a special "small business" corporation, which is called "Subchapter S," that has a tax structure like an LLC or sole proprietorship. In exchange for this protection, the IRS limits the number of owners and the kinds of stock they can sell.

Now for the problem: Subchapter S, which Hobby Lobby uses, doesn't limit revenues. You can legally run a Subchapter S corporation that brings $3 billion across the threshold...we know this because Hobby Lobby, and half the buyout shops on Wall Street, are doing it.

And how to fix the Hobby Lobby decision once and for all: Cause the IRS to determine that any business earning more than $1.5 million per year is not eligible to operate under Subchapter S.

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Reply We're trying to fix the Hobby Lobby decision the wrong way (Original post)
jmowreader Jul 2014 OP
Doctor_J Jul 2014 #1
jmowreader Jul 2014 #3
Igel Jul 2014 #2
BainsBane Jul 2014 #4
jmowreader Jul 2014 #6
BainsBane Jul 2014 #7
jmowreader Jul 2014 #10
freshwest Jul 2014 #9
ljm2002 Jul 2014 #5
Uncle Joe Jul 2014 #8

Response to jmowreader (Original post)

Mon Jul 14, 2014, 05:34 PM

1. Boycotting sounds much easier

 

than "causing the IRS" to do anything. And if you really weren't trying to sound lawerly, I'd hate to try to read something that DID sound lawerly

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Response to Doctor_J (Reply #1)

Mon Jul 14, 2014, 07:21 PM

3. Causing the IRS to change the S-corp rules would do other things too

A while back someone posted to DU a list of Wall Street flow-through entities. (I remember that Kohlberg Kravis Roberts was on it, and I believe Bain Capital was as well.) These highly profitable entities are hiding their wealth behind a tax structure meant to keep Joe's Plumbing Inc. and Frank's Medicinal Marijuana Farm Inc. from having to pay taxes at the 35 percent rate.

My feeling is, once you hit a million or so in taxable income (considering that the tax system is structured to let you write off every expense in your business, which is fair, $1M in taxable income equates to somewhere between $10M and $100M in revenue, depending on what your business is), you need to be paying taxes at the full corporate rate.

The bonus: If we put the screws to Hobby Lobby based on their revenues (remember, they're booking somewhere between $2.5 billion and $3 billion per year in sales), rather than on this one issue, we've eliminated their "religious exemption" line. Which, as we've already seen, is probably the purest form of bullshit - until they decided Jesus hated morning-after pills, they were covered under their health plan.

No, it won't be easy. But let's face it: most of the people who are "boycotting" Hobby Lobby because of this decision weren't going in there anyway. Of course, "I'm boycotting Hobby Lobby because they're conducting a war against women" sounds better than "I don't shop at Hobby Lobby because I don't need any Jesus-themed papier-mâché trinkets to hang on my walls."

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Response to jmowreader (Original post)

Mon Jul 14, 2014, 06:18 PM

2. Even better is trying to figure out what the goal is.

And how to reach it.

The goal at this point seems to be to find a way to force HL to "personally" pay for what we want them to pay for by making them face some sort of legal loss and preserve the women's dignity. To some extent it's about HL. To some extent it's about striking back at the forces of oppression. And if we can leverage that to hurt other forces of oppression, great.

It pays to remember that what was overturned wasn't the ACA, but a particular administrative regulation to implement the ACA that was based on an interpretation of the ACA.

If the goal is to provide these particular forms of birth control to the women--and for all the legal opinions one way or the other, that's precisely where we are and not where in our worst nightmares we might be--they should rewrite the opt-out mechanism and the means to let the people involved somehow trigger provision of the birth control.

One thing that's easy to overlook in all of this is the goal: As soon as it becomes moral and personal it's all us-versus-them, we're-good/they're-bad, and our vindication and their punishment are the order of the day. The cause becomes us and our virtue, which must be victorious over the forces of evil. It reduces the women involved not to objects but to symbols.

It sets up the other side for the same kind of response and instead of finding a solution we must fight until victory and our banner flies high over the corpses of the vanquished foe. The solution could probably be produced in a few weeks and in place in a couple of months, after the necessary time for regulatory criticism and public comment. But it wouldn't feel good, so it's something that will be used to score political points and drag out probably for years. Think of the children! The Alamo! And the Maine!

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Response to jmowreader (Original post)

Mon Jul 14, 2014, 07:23 PM

4. sounds promising

Have you written someone who can do something about it?

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Response to BainsBane (Reply #4)

Mon Jul 14, 2014, 07:42 PM

6. Who would be good?

The president gets way too much mail already, my entire congressional delegation would ban every form of birth control if they thought they could, and other states' congressmen only respond to their own constituents' needs.

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Response to jmowreader (Reply #6)

Mon Jul 14, 2014, 07:49 PM

7. Do you have a Democratic Senator?

Or send it to some Democrats on the committees that oversee the IRS.

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Response to BainsBane (Reply #7)

Mon Jul 14, 2014, 09:32 PM

10. In Idaho we don't have a Democratic ANYTHING

We damn near didn't have a Democratic county Democratic Central Committee...two of our better Democrats changed their voter registration to Republican so they could at least attempt to prevent our most insane local citizen from winning the primary she was running in, and as a result a TON of Republicans registered to run for Democratic precinct captain seats. It cost us $1800 to mail out cards that listed all the real Democrats running in the election. Fortunately it worked; we were able to fend off that assault.

Fortunately, Ron Wyden is on that subcommittee, and he's from the next state over. He might be good.

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Response to jmowreader (Reply #6)

Mon Jul 14, 2014, 08:42 PM

9. Send it to Senators Murray, Udall and Reid to use for this vote:

Democrats Set Up Senate Vote On Bill To Overturn Hobby Lobby

SAHIL KAPUR – JULY 14, 2014

On Monday, Senate Majority Leader Harry Reid (D-NV) moved to bring up Democrats' bill to overturn the Supreme Court's Hobby Lobby ruling. The "cloture motion" sets up a likely procedural vote in the Senate on Wednesday, requiring 60 votes to defeat a filibuster.

Republicans, who strongly support the Court's 5-4 ruling against the Obamacare birth control mandate, are expected to block the bill.

The bill, written by Sen. Patty Murray (D-WA) and Mark Udall (D-CO), would clarify that employers may not opt out of covering contraceptives or other preventive services in their insurance plans without co-pays, even if business owners object to the services on religious grounds.

For Democrats, the legislation is also a rallying cry to their younger voters, particularly women, ahead of a tough mid-term election.


Read more:

http://talkingpointsmemo.com/livewire/harry-reid-sets-vote-hobby-lobby-bill

to DonVeigo:

http://www.democraticunderground.com/?com=view_post&forum=1014&pid=846269

While you are not a constituent, their D.C. staff might take the mail. They might be able to use it as a tool on the GOP. Hit them where their heart is - money.


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Response to jmowreader (Original post)

Mon Jul 14, 2014, 07:27 PM

5. I don't know if your prescription is the right one...

...but I want to thank you profusely for spelling out the different kinds of business arrangements. I've tried, oh I've tried to get a straight explanation from lawyers and people selling incorporation packages but somehow none of them could give a nice basic overview like the one you gave here.

Thank you for that!

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Response to jmowreader (Original post)

Mon Jul 14, 2014, 07:53 PM

8. Kicked and recommended for further contemplation.

Thanks for the thread, jmowreader.

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