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Dems to soak key sector with taxes, spending
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07/22/09 02:17 PM ET
If there’s one segment of our economy that’s critical to economic recovery, it’s small businesses.
They create most new jobs, and they hold great potential for innovation that will carry the country into economic growth.
Unfortunately, small businesses are increasingly caught in the Democratic White House and Democratic-led Congress’s plans to raise taxes for new government spending. These officials seem to forget or overlook that small-business owners, when faced with a tax increase, will cut jobs, postpone new hiring, cut employee healthcare, cancel equipment orders, or all of the above.
That would be insult to injury to a struggling economy, even after a $787 billion stimulus package that has failed to produce new jobs.
Those of us who have looked at who creates jobs and what their tax obligations are have two tasks: one, to prevent tax increases on the job creators, and two, to offer tax relief to encourage even more job creation and business-growing investment.
Small business owners are nervous. The latest monthly survey from the National Federation of Independent Business (NFIB) shows credit availability at its lowest since 1980 to 1982, and business activity contracting accordingly.
The Democrats’ tax plans would make things much worse.
President Obama wants to allow the bipartisan tax relief of 2001 and 2003 to expire for the upper tax brackets.
A family of four in the 33 percent tax bracket in 2010 could pay a marginal effective tax rate of 41 percent after 2010 with the president’s changes.
Some Democratic colleagues defend these increases by claiming they will only raise taxes on “wealthy” taxpayers who make over $200,000 a year. For the vast majority of people who earn less than $200,000, raising taxes on higher earners might not sound so bad.
However, this means many small businesses would be hit with a higher tax bill. These small businesses happen to create 70 percent of all new private sector jobs in the United States.
These small businesses that are sole proprietorships, S corporations, partnerships, and LLCs would get hit with the president’s proposal to raise the top two marginal tax rates if their owners make over $200,000. In addition, there are just under 2 million small C corporations subject to double taxation.
To the extent these C corporations’ owners make over $200,000 and pay themselves a salary, they would get hit with the tax increase on the top two marginal tax rates proposed by the president and congressional Democrats.
Also, owners of small C corporations that receive dividends or realize capital gains and make over $200,000 would pay a 20 percent rate on these dividends and capital gains after 2010 under these tax hike proposals. Currently, they pay a rate of 15 percent on these capital gains and dividends.
As if this weren’t bad enough for small business, the House Democrats are advancing a graduated surtax of up to 5.4 percent on those making over $280,000. With this surtax, a family of four in the top two brackets would pay a marginal tax rate of in the range between 43 and 46.4 percent in 2013. This would result in an increase of the marginal tax rates by a minimum of 23 percent and a maximum of 33 percent. This is before even taking into account the 1.45 percent Medicare payroll tax as well as state taxes. Also, the House surtax would raise the capital gains and dividends rates to 25.4 percent. In addition, those subject to the House surtax that pay the Alternative Minimum Tax (AMT) would still have to pay the AMT amount in addition to the surtax.
Candidate Obama pledged on the campaign trail that, “Everyone in America — everyone — will pay lower taxes than they would under the rates Bill Clinton had in the 1990s.” The small-business surtax proposed by the House Democrats would violate that pledge.
According to NFIB survey data, 50 percent of owners of small businesses that employ 20 to 249 workers would fall in the top two brackets. According to the Small Business Administration, about two-thirds of the nation’s small-business workers are employed by small businesses with 20-500 employees.
Newly developed data from the Joint Committee on Taxation demonstrates that conservatively estimating, 55 percent of the tax from the higher marginal rates will be borne by small-business owners with income over $250,000.
If the proponents of the marginal rate increase and House surtax on small-business owners agree that a 23 percent to 33 percent tax increase for half of the small businesses that employ two-thirds of all small-business workers is not wise, then they should either oppose these tax increases, or present data that show a different result.
I recently introduced S. 1381, the Small Business Tax Relief Act of 2009, to lower taxes on these job-creating small businesses. My bill contains a number of provisions that will leave more money in the hands of these small businesses so that these businesses can hire more workers, continue to pay the salaries of their current employees, and make additional investments in these businesses.
We all want to see the job numbers moving in a positive direction. We all want to see the unemployment rate plummet. The best way for us to do that is to prime the job-creating engine of our economy, which is small businesses.
Grassley is ranking member of the Senate Finance Committee.
They create most new jobs, and they hold great potential for innovation that will carry the country into economic growth.
That would be insult to injury to a struggling economy, even after a $787 billion stimulus package that has failed to produce new jobs.
Those of us who have looked at who creates jobs and what their tax obligations are have two tasks: one, to prevent tax increases on the job creators, and two, to offer tax relief to encourage even more job creation and business-growing investment.
Small business owners are nervous. The latest monthly survey from the National Federation of Independent Business (NFIB) shows credit availability at its lowest since 1980 to 1982, and business activity contracting accordingly.
The Democrats’ tax plans would make things much worse.
President Obama wants to allow the bipartisan tax relief of 2001 and 2003 to expire for the upper tax brackets.
A family of four in the 33 percent tax bracket in 2010 could pay a marginal effective tax rate of 41 percent after 2010 with the president’s changes.
Some Democratic colleagues defend these increases by claiming they will only raise taxes on “wealthy” taxpayers who make over $200,000 a year. For the vast majority of people who earn less than $200,000, raising taxes on higher earners might not sound so bad.
However, this means many small businesses would be hit with a higher tax bill. These small businesses happen to create 70 percent of all new private sector jobs in the United States.
These small businesses that are sole proprietorships, S corporations, partnerships, and LLCs would get hit with the president’s proposal to raise the top two marginal tax rates if their owners make over $200,000. In addition, there are just under 2 million small C corporations subject to double taxation.
To the extent these C corporations’ owners make over $200,000 and pay themselves a salary, they would get hit with the tax increase on the top two marginal tax rates proposed by the president and congressional Democrats.
Also, owners of small C corporations that receive dividends or realize capital gains and make over $200,000 would pay a 20 percent rate on these dividends and capital gains after 2010 under these tax hike proposals. Currently, they pay a rate of 15 percent on these capital gains and dividends.
As if this weren’t bad enough for small business, the House Democrats are advancing a graduated surtax of up to 5.4 percent on those making over $280,000. With this surtax, a family of four in the top two brackets would pay a marginal tax rate of in the range between 43 and 46.4 percent in 2013. This would result in an increase of the marginal tax rates by a minimum of 23 percent and a maximum of 33 percent. This is before even taking into account the 1.45 percent Medicare payroll tax as well as state taxes. Also, the House surtax would raise the capital gains and dividends rates to 25.4 percent. In addition, those subject to the House surtax that pay the Alternative Minimum Tax (AMT) would still have to pay the AMT amount in addition to the surtax.
Candidate Obama pledged on the campaign trail that, “Everyone in America — everyone — will pay lower taxes than they would under the rates Bill Clinton had in the 1990s.” The small-business surtax proposed by the House Democrats would violate that pledge.
According to NFIB survey data, 50 percent of owners of small businesses that employ 20 to 249 workers would fall in the top two brackets. According to the Small Business Administration, about two-thirds of the nation’s small-business workers are employed by small businesses with 20-500 employees.
Newly developed data from the Joint Committee on Taxation demonstrates that conservatively estimating, 55 percent of the tax from the higher marginal rates will be borne by small-business owners with income over $250,000.
If the proponents of the marginal rate increase and House surtax on small-business owners agree that a 23 percent to 33 percent tax increase for half of the small businesses that employ two-thirds of all small-business workers is not wise, then they should either oppose these tax increases, or present data that show a different result.
I recently introduced S. 1381, the Small Business Tax Relief Act of 2009, to lower taxes on these job-creating small businesses. My bill contains a number of provisions that will leave more money in the hands of these small businesses so that these businesses can hire more workers, continue to pay the salaries of their current employees, and make additional investments in these businesses.
We all want to see the job numbers moving in a positive direction. We all want to see the unemployment rate plummet. The best way for us to do that is to prime the job-creating engine of our economy, which is small businesses.
Grassley is ranking member of the Senate Finance Committee.
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