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Pepperdine University School of Law

Tuesday, October 5, 2004

Tax Policy Center Says 471,000 Small Businesses Would Face Tax Increase Under President Kerry

Tuesday, October 5, 2004

The Tax Policy Center has published data on the Kerry Tax Plan and Small Businesses. Here is the summary:

President Bush and Senator Kerry have been sparring about the effect of Senator Kerry's tax plans on small businesses and jobs. Because of data limitations, it is impossible to tell with certainty how many employers would face tax increases. Table T04-0144 sheds some light, however. The table shows that 995,000 individuals who report flow-through income or loss on a schedule C or F, or active income from a partnership or S-corporation on a Schedule E would pay higher taxes under Senator Kerry's plan in 1995. (The Treasury Department's estimate is 940,000.) Only about half of those returns report that that income is more than half of all compensation, and only 71,000 claim a deduction for wages and salaries on Schedule C. Based on any of these measures, less than 5% of small business returns would face a tax increase.

Some taxpayers report income through an S-corporation or partnership return, and there is no direct way to tell how many of them have employees. According to www.factcheck.org, "Census Bureau figures from 1997 show that 28% of all partnerships had employees, and 77% of all Sub-S corporations." TPC estimates that among the returns with tax increases that do not report a deduction for employee compensation, 296,000 report S-corporation income or loss, 220,000 report partnership income or loss, and 110,000 report both (not shown in the table). Assuming that 77% of the S-corps, 28% of the partnerships, and 100% of those with both have employees, that implies an additional 400,000 small employers would face tax increases. Based on those assumptions, a total of 471,000 small employers would face a tax increase under the Kerry plan.

(A skeptic would note that Heinz Corp. has 37,500 employees, $8 billion in annual sales, $3 billion in annual gross profit, and a $12.7 billion stock market valuation.)

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Comments

Doesn’t that assume no overlap / cross filing? I would imagine that a huge number of those S corps and partnerships are professional service groups, like doctors, lawyers and accts. This last paragraph treats every lawyer as a separate small business. That can’t be right. Am I missing something?

~ VF

Posted by: Victor Fleischer | Oct 6, 2004 11:58:15 AM

i know kerry wants to tax small business owners, but where what will he give the money back as?

Posted by: nicole | Oct 14, 2004 8:06:58 PM