All eyes are back on Congress as the lame duck session continues. One topic on everyone’s mind: extending the Bush tax cuts. In fact, the showdown over the cuts is likely to be one of the biggest policy fights of President Obama’s term to date.
For months, the Administration officials said they would only accept an extension for the middle class, and fully intended to raise rates on “the wealthy” (defined as those making over $250,000 per year). So who are “the wealthy,” exactly?
In many cases, the “wealthy” are small businesses.
Given that many small businesses aren’t structured as formal corporations, their owners file as individual taxpayers – meaning they are subject to increases in the income tax rate. According to the Internal Revenue Service’s 2008 Statistics of Income Data, there are 30 million small business owners in the country – 22 million sole proprietors, and 8 million partnerships and S-corporations. Ryan Ellis, director of tax policy at Americans for Tax Reform, estimates that two-thirds of small business profits face tax rate hikes under the White House’s plan.
Those successful small businesses – the ones with profits – are the ones who hire workers. They are the ones who purchase goods and services from other companies. These are the people who will be hit with tax increases. In an increasingly interconnected economy, it is impossible to penalize the few without injuring many. Pillaging these businesses' profits will mean less expansion, fewer jobs, and diminished output and will decrease incentives to be successful.