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.
FUBO
No, it will be a tax on the employer for each employee. It will impact growth and jobs negatively at just exactly the worst time. But then Democrats have never minded as long it only involves the "rich".
Not this time.
That’s why they’re trying to drive us to “cashless” so they can track every transaction. Look for alcohol, collectibles, black-market tobacco, drugs and ammo - anything small and valuable - to become big-time barter currency. These boneheads NEVER think things through.
ROLLING STONE -4 Stars- "The eerie government health care bureaucrat, who is the arbiter of life and death (A dead ringer for Tom Dachle), puts on an incredible performance of sarcasm and plain carelessness".
Variety -A real tear jerker- "Watching company after company drop their worker health care benefits, due to the horrendous single payer plan being available to everyone, tugs at your heart strings."
NY TIMES Magazine "This movie will make your head explode watching Congressmen, Senators and the President coming up with every lame excuse what went wrong."
I agree with your logic but politically many dems are terrified to tax us more because of 2010 election ala 93-94. That is what is making it fun to watch. Watch Ed Schulz on MSNBC from Air America 6 pm EST rant and rave about weak kneed democrats on this issue.
We know taxes will go up in 2011 automatically. Health reform? I bet anyone $1 that Obama will not get his ‘cover everyone bill’. He may get something less and call it a down payment.
Democrats wanting to raise taxes. There's a shock.
Exactly. The Democrat socialists frame this as a tax on “millionaires”, when the vast majority of filers at that level are small businesses. This will crush them.
I'll bite. A cut in my income means I have less money to invest in my business. Put another way, my planned capital expenditures are dependent on a net certain income after taxes. If I miss that, I have to cut expenses to make the same investment. That means cutting salaries or laying people off. The other option is simply not making the planned capital expenditures needed to grow the business. Either option stinks. I am sick of the government taking as much as they want when they don't lift a finger to help my business. My capital investment budget is about 5% of my total after-tax income. Giving 3/5th of that to the government is extremely damaging.
Think about it.
The Gov’t won’t get much of it. Certainly, most boobs in DC have no idea how the real world operates. The small business owners I know will be taking more vacations, attending more conventions, or taking on more inventory to keep profits down.
Millions more of jobs will be lost.
Obama would call a beheading a "down payment" on a weight loss plan. Look! You lost 8 lbs!
Like Bush in 6 years of Republican congress he will sign ANYTHING and call it success, he has to.
I’m a small business owner and don’t have any real problem with this. If it looks like I’m going to see anything approaching $250k in profit I’ll reinvest those profits into starting some new business in Honduras, or some other freedom-loving, non-corrupt environment (if only those Cubans would get their act together!).
First of all, you are right; the tax is on net profit, not revenue. However, the individual owner or owners are taxed on that net profit, not on what they actually withdraw from the company. This means 3% less money to invest to expand the company. So, if a company clears say $1M split between two or three owners, and those owners are trying to grow the company by leaving as much money as they can in it, they have to replace that $30,000 somehow. That means one less job. Add to that the end of the Bush tax cuts, and there goes another job.
Well, this is different than taxing profits. In fact, what you're talking about now is a total bombshell. If they go after "gross revenue" then my 50% offshore operation is going to bump up to 90% very quickly. (And I've been very proud of working to maintain that 50/50 ratio these past many years).
Going for a percentage of gross revenue would be about the most un-American thing I can imagine. This could easily destroy may of the businesses it would affect.
Let them start taxing the abortion industry,they make billions!
“...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...”
Already done.
Lefty’s went first.
If Democrats want to vote in a way that is diametrically opposed to my values, even my livelihood, then I’ll ‘vote’ against them ANY TIME I GET THE OPPORTUNITY.
To do otherwise would be to act AGAINST my life/existence and I’m not going to do it.
Pink slips go to Dems first.
Live by the commie sword, die by the commie sword.
I guess all those businesses are going to be going to China, South America, Thailand, countries that don’t want to destroy people who build the economy.
Think how stupid those that voted for BO and lose their jobs because small businesses will cut their staffs to pay for the tax for those remaining.
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