Tuesday, October 16, 2012
American Enterprise Institute: Obama’s Big Tax Increases on Small Business:
It is quite a stretch for President Obama to argue that he wants to cut taxes for small businesses. In reality, he is proposing to increase taxes on small businesses by around $49 billion. ...
While in the strictest sense it is true that the president has lowered taxes for small businesses 18 times, this does not accurately reflect the totality of his small-business tax policy. In fact, on net, the president’s policy proposals will inflict significant harm on small businesses.
First, to the 18 times. ... [H]is “tax cuts” for small businesses have not been across-the-board marginal rate cuts, but instead have been targeted and often temporary deductions, tax credits, and subsidies. ... Of the 18, only 10 of them are still in place. Half of these 10 are extensions of programs first enacted by President George W. Bush or even before his time in office. ... So we started with 18, but now we’re down to 5. Estimates from the Congressional Budget Office, the Joint Committee on Taxation, and the U.S. Treasury Department suggest that the sum total of the tax breaks created by the remaining five will amount to at most $3 billion in 2013. ...
[T]he president has proposed the expiration of the Bush tax cuts, which will increase taxes by 4.6 percentage points on incomes above $250,000. Obama will increase taxes by a further 3.8 percentage points on these same incomes through the Unearned Income Medicare Contribution. ... And we shouldn’t forget the reimplementation of the Pease provision, also scheduled for January 1, which adds an additional 1 percentage point to the effective tax rate for these businesses.
It should come as no surprise that these tax increases dwarf the $3 billion in tax decreases that the president has brought small businesses.
According to a report by the Joint Committee on Taxation, approximately $690 billion of business income will be reported on tax returns subject to the marginal rate increases. A very conservative estimate based on IRS figures of the distribution of partnership and S-Corp income shows that only about 80 percent of this income is actually subject to the highest marginal rate, which puts the size of the tax hike at around 9.4% of 80% of $690 billion, or about $52 billion.
That $52 billion is much more than the sum of all tax breaks, which was about $3 billion. So it’s quite a stretch for the president to argue that he wants to cut taxes for small businesses. In fact, he wants to raise taxes on small businesses by an order of magnitude.
(Hat Tip: Glenn Reynolds.)