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Posted on 07/14/2009 11:49:19 AM PDT by Mount Athos
More than a million small business owners and about two-thirds of the profits earned by U.S. small businesses would be hit by the income tax increase on the "rich" that House Democratic leaders want to enact to pay for the health-care reform plan President Obama wants passed this summer, a taxpayer watchdog says.
Ryan Ellis, director of tax policy for Americans for Tax Reform, told CNSNews.com he calculated that 1.09 million of 21.5 million small business owners would see a one- to three-percent surtax on their profits in order to fund the House of Representatives’ trillion-dollar health care reform bill.
While only about five percent of small business owners would be exposed to the extra charge, Ellis says two in every three dollars of profit made by small businesses would be subject to it.
Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, announced late Friday that Democrats want to enact this tax increase.
The plan reportedly would include a one percent increase in the income tax rate paid by individuals earning $280,000 or more and by households earning at least $350,000. Steeper rate increases of up to three percent would be imposed on those earning $500,000 and $1 million or more. The committee hopes these income-tax rate increases will raise about $540 billion for the federal government over a decade.
Small business owners would be subject to the income-tax rate increases because many of them report the profits of their small businesses on individual tax returns. As a result, the roughly five percent who make more than $200,000 a year would be hit with the extra tax.
Ellis said the Obama administration’s claims that only a few small businesses will be affected misses the point. “(T)hat’s what the Obama guys will always tell you. It’s a small, single-digit percentage of small businesses that would be affected by this, and that’s absolutely true. It’s probably somewhere between five and 10 percent … of all small businesses.
“But if you actually look at the small business profits being reported, two-thirds of all small business profits are reported in these households.”
Indeed, IRS figures from 2006, the most recent year reported, show that $479 billion of the $707 billion in small business profits was reported by households in the top two percent of earners, those earning more than $200,000.
Republicans went on the offensive after Rangel's Friday announcement. A spokesman for House Minority Leader John Boehner (R-Ohio) said, “In the middle of a serious recession, with unemployment nearing double digits nationwide, the last thing we need is a tax increase on small businesses, which will cost the American economy even more jobs.”
Blue Dog Democrats in the House also voiced some concern. Rep. Jason Altmire (D-Pa.) told CQ Today, “I have a concern with going outside the health care system” when discussing funding options.
“I feel like the House has moved this issue so far to the left we've taken ourselves out of the discussion entirely.”
But Ways and Means Committee member Rep. Allyson Schwartz (D-Pa.) told The Washington Post that “if (the bill) works right,” the high earners who pay extra taxes will also see lowered health insurance premiums.
Ellis, however, is skeptical. “If you’re a very successful company and you’re making more than a million dollars a year,” he said, then at “a three percentage point surtax, you basically have to assume that their healthcare costs will go down by 3 percent of their profits in order to even themselves out.”
“That’s just not reasonable to expect,” he told CNSNews.com. “(T)here’s not one example of where the government is going to go in and take over something and start spending money on something and then it saves money.”
Rea Hederman, assistant director of the Center for Data Analysis at the conservative Heritage Foundation, also said small business owners will not see their money back unless they force their employees to take the proposed public health care option.
“The only way they would see reductions in health care,” he said, “is if small businesses just say we’re not going to offer health care to our employees all together, and I don’t think that’s a direction that people want to go,” Hederman said.
While the surtax for small businesses may top out at three percent, Hederman said, “in percentage terms, the tax burden is jumping somewhere between four and a half to five percent, and this is going to be combined with the expiration of some of President Bush’s tax cuts.”
The health care surtax would come in addition to the scheduled expiration of the Bush tax cuts at the end of 2010, which will move the federal top rate from 35 percent to 39.6 percent.
In a statement, Thomas Hodge, president of the nonpartisan Tax Foundation, said total top rates, including federal taxes, could push past the 50 percent mark in some states.
“Combining top federal and state rates, and factoring in all deductions, the government would be taking over half of every additional dollar from high-income taxpayers in two-thirds of the states under this latest funding scheme.”
According to Hederman, “Unfortunately, right now, businesses are going to have trouble pricing in (these) cost increases.
“(So) businesses will continue to try to wring out as much efficiency as they can in the labor force, and that means cutting back hours and cutting back jobs,” he said.
A May 2009 survey performed by the National Federation of Independent Businesses, small business owners identified high taxes as the second biggest problem facing them, trailing only poor sales.
The tax increase, if enacted, would take effect in 2011.
Too bad there’s not enough rich people to actually make this plan work.
You know this how ?
No, a shock would be a democrat that PAYS taxes.
Live and work in DC my friend. All kinds of folks around here do very well with one and two person consulting shops working for World Bank, various agencies, etc. You know, like Tom Daschle's wife that we all used to complain about. You set up a little LLC with yourself as sole proprietor and you start peddling your influence. It's the stuff our democracy is made of.
Actually, no. There is a $185,000 or thereabouts immediate capital write-off for small businesses, so you can reinvest up to $185,000 and write this off in the current tax year. Only then do you start to have to depreciate your capital investments. Moreover, if you have been investing in your business for the long term, you should already have a lot of recurring depreciation against which you can make new investments.
Anyone who runs a small business already knows this.
And given all the other tax advantages of owning a small business, it is not actually the well-off small businessman (who is the target of this tax) that is getting screwed. It is the salaried workers who get screwed.
Like I said. I am not in favor of raising taxes on anyone. But this particular cult of the sacred small businessman is worshipping another false god.
Once this happens the Congress will pass laws against "economic crimes", just like the old communist Soviet Union and the ChiComms did. And like North Korea still does. We now have thought crimes (so called "hate crimes") and now we Americans will be designated "financial criminals" if they sell or trade their own personal property without federal government permission. Think of the day when the Federal Government (or even state government) will enact laws that say you have to have government permission to sell your house or just to move to another state. (Hey, it's on it way.)
I already said I disagree with all new taxes. The people they employ, however are not screwed because their salaries are still deducted as business expenses for net income is computed for tax purposes. No we don't all pay for it.
I don't want the feral gubmint to have more money, and I think that taxes should be cut for everyone. But this small business owner as hero of the country argument is a bit much. The professional who earns a salary has invested just as much, works just as hard, and has just as much at risk, perhaps more.
Well, there’ll be a whole lot of “criminals” then. And people just getting fed up and walking away from their property. And riots and shortages and unrest, etc.
That it may well be. However, your comment implied that it was what the vast mahority of sucessful small businesses were, and therefor we shoulden't worry about taxing them so heavily.
That is not true.
Bullcrap. Total garbage. And I am a salaried professional, not a business owner.
How’s that Hope and Change going for ya, dumbasses that voted for him??
The Dems want small businesses to close. Too many Republicans own small businesses, and small businesses don't employ enough union labor.
The Dems prefer big businesses that they can coerce into making big campaign contributions (if they know what's good for them) and employ lots of union labor.
I am sure you are correct.
I used to be a small business owner. Net profit is what you need to expand the business, buy more equipment, rent bigger space, and hire more people. Yes, you can borrow the money, but that just means you go bust at the first downturn in revenue.
High taxes mean that you can't grow the business. And since you generally find yourself with small or negative cash flow for the first few years of a startup, this means that you will have a harder time making back the money once the business finally turns a profit. This means that fewer people will BOTHER taking the risk of starting a business.
Each of thes is already a deductible expense before you calculate net taxable profit. Moreover, a small business can take an immediate deduction of up to $250,000 for capital investments rather than have to depreciate it over time. This tax only applies to the final bottom line reportable net income after all business expenses, including IRA or 401(k) contributions.
Sure, a tax is a tax,and we all hate taxes, but this is not about to destroy small business.
since you generally find yourself with small or negative cash flow for the first few years of a startup, this means that you will have a harder time making back the money once the business finally turns a profit. This means that fewer people will BOTHER taking the risk of starting a business.
As a small business owner, I have no sympathy for folks who cannot do simple accounting or understand a few simple things about tax law. Of course you can carry forward operating losses to offset profits in years to come, or charge it against other current income.
I think you are right but if you take this out a little more the libs won’t be able to find rich people. If govt is going to be the end all for everyone why work? If I can lay around the house all day and still get free money for it I’d be stupid to work.
They’ll chuck you in the gulag. Think soviet russia. It only takes a generation or so to flip everything around.
That would be interesting. I wonder what the charge would be? “Defrauding” the gubmint? How times are a changin’.
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