• On Wednesday, Treasury Secretary Tim Geithner said the following about the Obama Administration’s plan to hike small business taxes in January:

"Now some have argued that even if only a few percent of small business owners make over $250,000, these few make up a vast amount of supposedly small business income.  This argument apparently counts anyone who receives any type of partnership or business income as if they were a small business.  By this standard, every partner in a major law firm and every principal in a major financial institution would count as a separate small business. A CEO who has board fees or speech fees would also count as a small business owner under this overly broad definition."

• The Obama Administration apparently believes that the 8 million Americans who are business partners and Subchapter-S corporation shareholders are not “real” small business owners.  Are they correct?

• These small employers are, indeed entrepreneurs.  According to the IRS, these 8 million partners and S-corporation owners keep the doors open across Main Street America.  There are 4 million companies organized as S-corporations, and 3 million partnerships.  Most of these are white-collar, professional offices such as dentists, doctors, and accountants.  It also includes manufacturers, restaurant owners, and other bona fide small businesses all across America.

• For example, there are nearly 250,000 doctor, dentist, and skilled nursing offices which are organized as S-corporations or partnerships.  They all employ nursing assistants, dental hygienists, receptionists, office managers, janitors, etc.  They provide needed services.  These are not far-distant, fat-cat rich people.  They are our neighbors, and they run small businesses in every small town.

• Most of these mature small businesses that are in a position to hire have profits of at least $200,000 per year.  As such, the Obama Administration has targeted them for a tax rate hike.  The marginal tax rate on these small employers would rise from 33 or 35 percent today, up to 36 or 39.6 percent in January.  In the case of partnerships, another 2.9 percent can be tacked on, which will rise to 3.8 percent thanks to the Obamacare law.

• Two-thirds of small business profits will face these tax rate hikes.  That means less money to hire workers and give raises.  It means higher prices for all of us as we purchase goods and services.  It means boarded-up stores on Main Street.

PDF Version

Posted by Ryan Ellis on Friday, August 6, 2010 1:25 PM EDT

To follow Ryan Ellis's RSS feed click here. To follow them on Twitter, their handle is @ryanlellis