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The conservative argument (and that of the John McCain campaign) is that Obama’s stated plan to raise taxes on households making $250,000 or more in income is a tax increase on small business.
The simple answer to this dilemma can be found in the IRS Statistics of Income Bulletin (Table 1.4, for those who are interested).
So what do the data say?
In 2006 (the latest year available), $706 billion of such income was reported to the Internal Revenue Service.
Of this, about half was reported by households in the top marginal income tax rate.
Interestingly, two-thirds of this income was reported by households making $250,000 per year or more — the very same households that Obama wants to increase taxes on.
The Obama campaign maintains that the number of small-business owners is what’s important.
Make no mistake about it:
Obama’s plan to raise taxes on households making more than $250,000 will raise taxes on most small-business profits in America.
What type of tax rate are we talking about? Currently, S corporations face a top tax rate of 35 percent, while sole proprietors and general partners face a tax rate of 37.9 percent (since they’re responsible for paying both income tax and the Medicare component of the payroll tax).
Under Obama’s plan to let the scheduled 2011 tax rate hikes occur, and his plan to raise the self-employment tax on those making more than $250,000, the S corporation rate would rise from 35 percent to 39.6 percent.
The sole proprietor and partner rate would rise from 37.9 percent all the way up to a staggering 50.3 percent.
Many Democrats in Congress have proposed making all small businesses (including S corporations) pay this 50-plus percent rate.
A small business tax rate that high would be the highest marginal rate faced by them in nearly a quarter-century.
Fewer Americans would be interested in opening or expanding small businesses. Tax evasion and legal tax avoidance would spike, as tax shelters would once again become a booming industry.
Since small businesses create a majority of jobs in America, Main Street closing up shop will have a direct impact on the family budget, as well. Despite the misguided opinions of static scorers in Washington, federal tax revenues will likely decline as the economy staggers into a full-on recession.
What’s the alternative? One place to look is the optional alternate tax system originally proposed by Congressman Paul Ryan (R-Wis.) and now endorsed by McCain.
It would give households (including those with small business income) a choice between the current tax code and one with a top rate of 25 percent on all income over $100,000. This would have the beneficial effect of lowering the tax rate on most small-business income by 10 percentage points.
Small businesses haven’t faced a tax rate that low in quite some time and would be likely to respond with the creation of new businesses and more investment in existing businesses.
Here's a great link that describe's Obama's planned costs to small business. The tax "advantages" like capital gains tax break and self-employment credit of $500 are minimal and will not balance or outweigh the costs. It comes across that Obama has no understanding of what it is like to operate a small business.
Also, Obama doesn't seem to take into account that:
- Income fluctuates for small businesses
- Income doesn't reflect any business's entire financial picture
- Small businesses have been struggling since 9-11
- Many have no healthcare, no savings, debt and property in need of repair
- Many have gone out of business and no longer generate revenue or jobs
While some small businesses are corporations by status, they have little in common with large corporations: tax breaks, reserves, off-shoring, etc. The majority of small businesses are much more like middle class Americans in terms of income and more like lower class Americans in terms of debt and lack of savings.
Working for someone else is less stressful, usually more stable and often has fringe benefits like healthcare. So what's the incentive to run a small business under Obama? And do we really want small business, the original foundation of our economy, to fade from our economy?
Hello? Under the current tax structure, Wall Street has tanked and the economy is on the verge of collapse. *Knock, knock* Anybody home?
It wasn't due to tax police. We had GDP growth of 3.3% last quarter. The economy is not collapsed and "Wall Street" has not tanked. Look at stock values.
Obama wont tax you directly, but everything around you will be taxed meaning you pay more for virtually everything.
You can try, but they'll never understand that Obama's tax increases will impact the very people who can least afford it.
They seem to exist in some magic la la land where the cost of increased taxes, doing business, production, distribution, etc., isn't passed on to the end user.
You can try, but they'll never understand that Obama's tax increases will impact the very people who can least afford it.
They seem to exist in some magic la la land where the cost of increased taxes, doing business, production, distribution, etc., isn't passed on to the end user.
Well, its pure stupidity. I hear Obama say "we will tax those big corporations" but little does he realize that the poorest rely on those "big corporations" for jobs and goods. If they are taxed, say, $1,000,000,000/year more, then where do you think those comanies will get that extra money? They will likely lay off workers, and raise prices for their supplies.
You can try, but they'll never understand that Obama's tax increases will impact the very people who can least afford it.
They seem to exist in some magic la la land where the cost of increased taxes, doing business, production, distribution, etc., isn't passed on to the end user.
If taxes become to restrictive, I would shut down my small business, liquidate my assets and there would be 50+ families out of work...
Reagan style 'trickle down' works.
Do not high-tax the people who create the majority of the jobs in this country...(small business)
You can try, but they'll never understand that Obama's tax increases will impact the very people who can least afford it.
They seem to exist in some magic la la land where the cost of increased taxes, doing business, production, distribution, etc., isn't passed on to the end user.
I think it is because of the word "FREE" It stops blood flow to the brain!
His ideas and policies will absolutely kill growth.
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