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.”