Treasury Secretary Tim Geither, echoing President Obama, has repeatedly said that their trillion-dollar tax hike won’t be that harmful to small business, since relatively-few small business owners will be affected.
That’s absolutely true, and absolutely misses the point.
Geither, et al, are looking at the wrong measurement of the Obama tax hike’s impact on the small business sector of the economy.
Consider what Geither today said in National Journal’s "Congress Daily AM"
"Now, I just want to pause here for one second," Geithner told the House Budget Committee Thursday, his third appearance on Capitol Hill in three days. "Those proposed changes in tax rates would apply to only 2 to 3 percent of small-business owners across the country, only 2 to 3 percent. Ninety-five percent of small-business owners … have incomes below that threshold of $250,000."
It might surprise some to learn that ATR agrees with this statement. It’s consistent with a reasonable interpretation of IRS data.
However, it completely and totally misses the key point: the Obama tax hike will raise the tax rate on $2 out of every $3 in small business profits. Fully two-thirds of small business profits (and thus the small business sector of the economy) pay taxes in households Obama wants to raise taxes on. Small businesses pay taxes on their owner’s 1040 forms.
Breaking it down further, it’s $0.40 out of every $1.00 in sole proprietor profits. It’s $0.90 out of every dollar of business partnership and S-corporation profits.
So how is this possible? How can the Obama tax hike apply to a relative handful of small business owners, but at the same time to the lion’s share of small business profits?
Simple–the few small business owners that Obama is hiking taxes on also happen to be the ones generating most of the small business profits in America.
When the Obama tax hike takes money out of the small business sector, it will cost jobs and shrink investment. According to the Census Bureau, firms with fewer than 100 workers employ 43 million Americans, or over one-third of everyone working in the United States.
The fact is, it’s the successful small businesses that Obama and Geither want to raise taxes on who employ these tens of millions of American workers.