Obama tax hike would affect 1.2 million small businesses

Michael Bastasch | Contributor

In an effort to restart the tax debate and stave off tax increases for all but wealthy Americans, President Barack Obama has asked Congress to extend tax cuts for individuals making less than $200,000 and married couples making under $250,000.

However, this plan would hurt businesses that are the most successful job creators, according to the conservative Heritage Foundation.

Under Obama’s proposal, the highest income tax rates will go from 35 percent and 33 percent to 39.6 percent and 36 percent, respectively. This rate increase would negatively affect 1.2 million — 28 percent — small businesses filing under the individual income tax code that make over $200,000.

“President Obama’s tax hike is tailored to hit the most successful small businesses that hire the most workers, that pay their taxes through the individual income tax code,” Curtis Dubay, senior tax policy analyst at the think tank, told The Daily Caller News Foundation.

Obama argues his plan would extend tax cuts for 98 percent of Americans and 97 percent of small businesses owners.

“That’s why I’m calling on Congress to extend the tax cuts for the 98 percent of Americans who make less than $250,000 for another year,” Obama said on Monday. “The proposal I make today would extend these tax cuts for 97 percent of all small business owners in America,” he said.

Obama “talked a lot about how 97 percent of small businesses aren’t going to be paying higher taxes. That might be true,” said Dubay. “However, most small business filers are people who do side jobs.. [They’re] not a small business in the traditional sense, [they] don’t hire anybody… so that number is largely irrelevant, it doesn’t mean anything.”

A 2011 Treasury Department study found that 30 million — 88 percent — of small business tax filers are people who do side jobs, like computer technicians, academics or experts writing studies or giving lectures, and even people selling goods on eBay. These “businesses” don’t actually hire workers.

Only 4.3 million small business filers employed workers. Of those 4.3 million small businesses, 1.2 million — 28 percent — earned over $200,000, meaning that a large share would be hit by Obama’s proposed tax increases.

Those 1.2 million small businesses earned nearly all — 91 percent — of flow-through business income in 2007, the most recent year data is available.

“So they’re the ones earning all the income, meaning they’re the ones doing all the hiring,” Dubay said. “So [Obama’s] tax increase is tailored directly to slam small business job creators.”

According to Dubay, increasing taxes on the wealthy would actually hurt lower-income Americans by discouraging small businesses from making investments, hiring and expanding.

Sixty million Americans, half of the private workforce, are currently employed by small businesses, according to the President’s Council of Economic Advisors. Over the past two decades nearly two of every three jobs has been created by small businesses.

On January 1, 2013 Americans may be smacked by nearly $500 billion in tax increases, according to the conservative Heritage Foundation.

The figure includes the anticipated expiration of Bush-era and payroll tax cuts and tax increases from the Affordable Care Act.

Obama professes to be an advocate of tax fairness to reverse policies that favor the rich.

“Congress passed trillions of dollars in tax cuts that benefited the wealthiest Americans more than anybody else.  And we were told that it would lead to more jobs and higher incomes for everybody, and that prosperity would start at the top but then trickle down,” Obama said. “And what happened?  The wealthy got wealthier, but most Americans struggled.  Instead of creating more jobs, we had the slowest job growth in half a century.  Instead of widespread prosperity, the typical family saw its income fall.  And in just a few years, we went from record surpluses under Bill Clinton to record deficits that we are now still struggling to pay off today.”

However, Dubay said that Obama’s appeal to fairness is misleading because taxing wealthy people would hurt overall job creation and economic growth.

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