Photo by Masaaki Komori on Unsplash https://unsplash.com/photos/iaSzwYccV28

Senate Democrats are set to introduce legislation that contains a $252 billion tax increase on over one million small businesses. With the economy struggling and inflation out of control, now is a particularly bad time to increase taxes on businesses. The Democrat tax increase also violates President Biden’s pledge: “Taxes on small businesses won’t go up.”

This tax increase would be included in the Democrat’s trillion-dollar tax and spend proposal that is being negotiated by Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-W.Va.). 

Democrats are proposing to expand the 3.8 percent net investment income tax (NIIT) which was created under Obamacare. Currently, the tax is imposed on individuals’ passive business income, including interest, dividends, annuities, and royalties. It is not imposed on wage income or nonpassive business income. Democrats want to expand the tax to apply to nonpassive business income. This would apply to taxpayers filing as individuals making more than $400,000 and joint filers making more than $500,000. 

While the Left argues this would close a “loophole,” it would actually be a substantive policy change that would increase taxes on small businesses across the country. When Congressional Democrats created this tax in 2010, they deliberately had it apply to passive income, not active business income because of the concern that it would raise taxes on small businesses. 

Below is a list of the number of small businesses that would see a tax increase nationwide and in each state. This is not an exhaustive list, as it only includes data from filers with a reported net income of over $500,000 from a partnership or S-corporation. There would be even more filers subject to the Democrats’ tax hike. 

STATENumber of Filers Subject to Tax Hike
United States992,740
Alabama9,700
Alaska1,820
Arizona17,000
Arkansas4,930
California148,000
Colorado22,330
Connecticut17,540
Delaware2,200
District of Columbia4,180
Florida84,540
Georgia27,910
Hawaii2,680
Idaho4,320
Illinois40,960
Indiana13,740
Iowa6,360
Kansas7,210
Kentucky7,250
Louisiana10,420
Maine2,610
Maryland19,120
Massachusetts31,050
Michigan22,350
Minnesota16,000
Mississippi3,980
Missouri12,340
Montana2,810
Nebraska4,620
Nevada9,220
New Hampshire3,960
New Jersey38,220
New Mexico3,080
New York85,870
North Carolina24,700
North Dakota2,200
Ohio23,760
Oklahoma7,780
Oregon10,170
Pennsylvania32,600
Rhode Island2,720
South Carolina11,190
South Dakota2,650
Tennessee15,120
Texas88,200
Utah8,950
Vermont1,400
Virginia25,120
Washington25,090
West Virginia1,870
Wisconsin12,750
Wyoming2,300