California Lt. Gov. Gavin Newsom and other politicians gathered in Sacramento yesterday to commemorate California’s annual Small Business Day. Conspicuously absent from the discussion and media coverage however, was the adverse impact that Gov. Jerry Brown’s tax hike package would have on small businesses in California if passed in November.

Gov. Brown, President Obama, and their ilk love calling for higher taxes on upper incomes in the name of “fairness” and raising revenue. Yet what they conveniently forget to mention is that raising income taxes, especially on upper income brackets, does great harm to the small businesses that are the backbone of the American economy. That’s because the individual income tax system is the one under which small businesses profits face taxation. Thus when Gov. Brown and President Obama talk about their proposals to raise taxes on “the rich,” they are really talking about raising taxes on small businesses and reducing those businesses’ ability to create jobs.

According to IRS data, of the nearly 6.6 million individual income tax returns filed in California in 2010 (the most recent year for which data is available), over 3 million of those returns were small businesses. However, this figure only reflects sole proprietors. When the share of small businesses made up of S-Corps and partnerships is factored in, it turns out that upwards of 3.8 million small businesses file under the individual income tax system in California and would see their taxes go up if Gov. Brown’s income tax hike passes this November. Gov. Brown is also seeking to add insult to injury with his proposed sales tax increase. For information on how sale tax increases disproportionately harm small businesses, click here.

Under Governor Brown’s initiative, these businesses would see a sizable increase in their already heavy tax burden. The California Legislative Analyst’s Office predicts that Gov. Brown’s proposed income tax hike will siphon $33.8 billion from the private economy over the next six fiscal years. Keep in mind that President Obama’s budget calls for higher taxes on the majority of small business profits. If both he and Gov. Brown have their way, it’ll be a rough year for small businesses throughout the Golden State. California small businesses simply cannot afford such an onerous rate increase when operating in a state that already possesses the second highest income tax rate in the country.

[Photo credit: San Diego Union-Tribune]