Democrats are expected to extend the Bush tax cuts for individuals earning less than $200,000 and joint filers earning less than $250,000 annually. That basically means that the top two rate cuts will return to their higher, pre-2001 levels in January.
Lawmakers on both sides of the aisle have claimed a tax increase on the upper brackets will hurt small business that are taxed as individuals and hinder their ability to hire additional workers.
The CTJ report, issued last Thursday, states that only 3 percent to 5 percent of small businesses earn enough of a profit to qualify for the top tax rates. It also claims that hiring decisions are normally based on demand and generating more of a profit, not on tax savings.
"Lawmakers who have supported the Bush tax cuts in their entirety are going to continue to support making all of these tax cuts, even for the very richest Americans, permanent," the report states. "They will use whatever argument they believe the public will be receptive to in the current economic and political environment."
Some lawmakers have also floated the idea of carving out small businesses from the coming rate hike on the upper brackets. But the CTJ argues a special tax break for companies will encourage wealthy taxpayers to disguise their income as coming from a business to qualify for the carve-out.
Absent congressional action on the upper brackets, the 33 and 35 percent rates will increase to 36 and 39.6 percent in January, respectively.