Tag: Chapter S

It’s a Tax Increase on Small Business

Rep. Paul Ryan (R-WI) appeared on Face the Nation on Sunday, making a basic point about tax rates and the President’s renewed call for higher taxes.

If you have really high tax rates what you end up doing is you penalize small businesses. What you have to remember Bob, most successful small businesses file their taxes as individuals. Most of our jobs come from these small businesses. The president is proposing to raise the top tax rate on these small businesses to 44.8 percent. We don’t think that’s good for jobs, we don’t think that’s good for economic growth, and when we tax our employers a whole lot more than our foreign competitors tax theirs, we lose, they win, and we don’t want that.

Two things, number one: We don’t have a tax problem. Our revenues are going back to where they have been historically. We have a big spending problem…The president’s proposing $1.5 trillion in tax increases, the Democrats in congress are proposing anywhere from $2-16 trillion in tax increases based on the three budgets they brought to the floor the other day…Here’s what we’re trying to get: Spending cuts and controls to get spending under control — because that’s the problem — and economic growth and job creation. We don’t want to give up one to get the other.”

Via The Corner, National Review Online.

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In the President’s Budget: These Tax Increases Look Familiar

We read somewhere that President Obama had started reaching reaching out to business, recognizing  that you can’t have employees without employers, jobs without job creators. But the outstretched hand gets pulled back in the budget released today, at least on taxes.

From AP, “Obama budget resurrects rejected tax increases“:

WASHINGTON (AP) — President Barack Obama’s budget proposal resurrects a series of tax increases that were largely ignored by Congress when Democrats controlled both chambers. Republicans, who now control the House, are signaling they will be even less receptive.

The plan unveiled Monday includes tax increases for oil, gas and coal producers, investment managers and U.S.-based multinational corporations. The plan would allow Bush-era tax cuts to expire at the end of 2012 for individuals making more than $200,000 and married couples making more than $250,000. Wealthy taxpayers would have their itemized deductions limited, including deductions for mortgage interest, charitable contributions and state and local taxes.

We had this alternative headline in mind: “Obama budget message to business: ‘Psych!’”

And as stated many, many times during the lame-duck session, a majority of small manufacturers files as individuals under the tax code, meaning the proposed increases in the top bracket would in fact be a tax increase on small business. See our Nov. 16, 2010, post, “The Realities of Tax Increases on Small Business, Manufacturers.”

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Whether On Small or Medium, Tax Increases Still Do Harm

In a letter to the editor in today’s Wall Street Journal, Assistant Treasury Secretary Michael Mundaca argues against Kevin Hassett and Allan Viard’s Sept. 3 op-ed claiming that small businesses will be hit by raising individual income tax rates.  Mundaca writes:

The problem with their argument, however, is that it counts any type of partnership income, sole proprietor income, or S corporation income as small-business income… Our analysis indicates that small-business owners under this definition, who would be affected by allowing the top two rates to increase as scheduled, have an average gross income of over $1 million.

So, what we’re quibbling with here is the definition of small-business income.  Mundaca is arguing that a small business with gross income over $1 million isn’t small.  We’ve made the point over and over that manufacturers are capital intensive – one manufacturing press alone could cost $1 million.  Frankly, a small manufacturer with only $1 million in gross income is small!

But, we’re flexible.  If it makes folks feel better, we’ll call them “medium-sized” businesses.   It doesn’t change our position though.  We think that raising taxes on a “medium sized” manufacturer with $1 million in income (which incidentally, would be a $35,000 tax increase) is a bad idea.  And we think it will hurt job creation.

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