Search This Blog

Tuesday, January 12, 2010

Small Biz Health Care Daily: Taxing Investment = Taxing Small Business

The January 12 Wall Street Journal included a news story noting that U.S. House of Representatives and Senate negotiators are considering an increase in the tax rate on investment income to help pay for big government health care.

The Senate bill included a hike in the Medicare income tax for individuals earning more than $200,000 and couples earning more than $250,000 from a total rate of 2.9% to 3.8%. This tax increase on wages would be ill-advised for a variety of reasons, including raising the cost of working and risk taking, as well as shifting resources from more productive private sector ventures and funneling those resources into the hands of wasteful, inefficient government.

And keep in mind that, combined with the tax increase looming at the end of this year, the top personal income tax rate would increase from 35% to 43.4%. Of course, most businesses (better than 90%) pay the personal income tax, rather than the corporate income tax.

But the Journal story shows that negotiators are considering making this ugly tax increase even worse by applying it to investment income, for example, capital gains and dividends.

Combine this with what’s already slated to occur at the end of this year, and the capital gains tax paid by individuals would jump by 59 percent – from 15% to 23.8%.

Make no mistake, this tax increase would hit investors and entrepreneurs. And how can raising taxes on investment and entrepreneurship possibly be good for the economy, business formation and job creation? It can’t.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

No comments: