News Flash: Large percentage of small business owners will get hit by proposed tax hikes moving through Congress

Small business advocates like the Small Business & Entrepreneurship Council (SBE Council) continue to say that the proposed tax hikes moving through Congress will largely impact small business owners and entrepreneurs. We have argued that taxing small business owners in a down economy is a foolish policy move as the nation is even more dependent upon our sector for job creation, innovation and getting the economy back on a solid growth track.

A memo from U.S. Senator Chuck Grassley (R-Iowa), Ranking Member, Senate Finance Committee, and Rep. Dave Camp (R-Calif.), Ranking Member, House Ways and Means Committee, reports on a new study that finds more than half of the proposed $338.8 billion tax hike on “wealthy earners” will fall on small business owners.

Here is their analysis of the Joint Committee on Taxation report:

“According to the non-partisan Joint Committee on Taxation, in 2011, the President would tax $88 billion of net positive business income at the 36 percent rate and $349billion at the 39.6 percent rate. This tax increase would raise $18.694 billion in 2011. Multiplying this over ten years suggests the proposed higher marginal rates are likely to cost small business owners somewhere in the neighborhood of $187 billion over the ten-year budget window. That equates to roughly 55 percent of the revenue raised under the President’s proposed higher marginal tax rates coming from tax increases on net positive small business income ($187 billion out of $338.76 billion). Moreover, the Joint Committee on Taxation found that approximately half of the income (47%) targeted by the President’s marginal tax rate increase proposals in 2011 would be earned by small business owners.”

Obama Administration officials, and specifically U.S. Treasury Secretary Timothy Geithner, have said that only 2 percent of small business owners would get hit by their proposed tax hike. (This proposal, moving through Congress, allows the 33 percent and 35 percent brackets to rise to 36 percent and 39.6 percent in 2011.)

As an aside, it is estimated that the percentage of small business owners getting hit by the proposed tax hike would increase once you include taxpayers earning more than $200,000.

As SBE Council continues to say, raising taxes now on any individual or business
remains an unwise and counterproductive policy measure.

Karen Kerrigan, President & CEO