Fact Sheet: President’s Small Business Surtax Hits Job Creators

The Proposal: The President and Senate Democrats are pushing a permanent 5.6 percent tax increase to pay for another temporary stimulus bill. With the economy as weak as it is, this $453 billion “surtax” would punish job creators, families, and investors, diverting money into more government spending.

The Facts: Permanent tax increases to pay for another temporary stimulus and hitting job creators with higher taxes that would impact their ability to hire and retain workers is not what America’s economy and workers need.

Four out of five taxpayers hit by Senator Reid’s small business surtax are business owners. (Source: Office of Tax Analysis, Department of the Treasury Technical Paper: Methodology to Identify Small Businesses and their Owners August 2011)

According to the Joint Committee on Taxation, 34 percent of all active flow-through business income will be subject to Senator Reid’s surtax. This is especially harmful to small businesses, which are often organized as flow-through entities, including sole-proprietorships, partnerships, LLCs, and S-corporations.

The bulk of small business income is taxed on the owners’ individual tax returns at individual rates, even if the small business owner leaves that income in the business to pay existing workers and hire new workers. With small businesses creating two-thirds of the new jobs in our economy, Senate Democrats should not be attempting to raise their taxes, especially when unemployment is at 9.1 percent.

The victims of this surtax will be those who could’ve been hired if job-creators weren’t hit with this tax hike and those employees who could be laid off.

According to a Senate Finance Committee Republican analysis, marginal tax rates will climb to over 50 percent on January 1, 2013:

o Flow-through business income rate jumps to 50%.
o Individual income tax rate jumps to 53%.

Former President Bill Clinton recently said we should not raise taxes in our current economy:

o “I personally don’t believe we ought to be raising taxes or cutting spending, either one, until we get this economy off the ground,” said Clinton. “This has been a dead flat economy.” (Source: Newsmax Interview, 9/20/11)

Alice Rivlin, President Clinton’s OMB Director believes that we should fix the tax code rather than make it more complex with new provisions.

o “The way to fix the tax code is to fix the tax code, not to add another complication at the margin.” (Source: CNN, “State Of The Union,” 9/18/11)

Millionaires aren’t a static group of people – many who earn $1 million in one year, are likely earn under a million the next. In fact, the highest-income taxpayers are a dynamic and rapidly changing group, with 73 percent of them appearing in the highest income group only once over a period of 16 years. This is due in large part because of capital they’ve invested in things like new equipment or hiring or more cash they need to keep on hand to expand.

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