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Talking Points for Small Business
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A Small Businesses exception from the top two income tax rates does not grow jobs, help Small Business owners or the improve the deficit –
Talking points
- Any exceptions for small businesses are likely to inspire tax avoidance actions that will lead to lower revenues and a higher deficit – For example the GAO calculated that in 2003 and 2004, S corporations underreported approximately $23.6 billion in compensation to shareholders, “which could result in billions in annual employment tax underpayments,” because S Corps don’t have to pay payroll taxes.
- The CBO recently released a study that explains why tax rates have little to do with creating jobs – “increasing the after-tax income of businesses typically does not create much incentive for them to hire more workers in order to produce more, because production depends principally on their ability to sell their products.”
- Few if any real small business will be affected by the tax – According to the Joint Committee on Taxation, allowing the two top tax rates to return to their pre-2001 levels would have no impact whatsoever on 97 percent of taxpayers with business income.
- What is a small business ?– not what you might think – For example the following types of individuals are commonly included in the definition of “small business” used in tax debates: partners in very large corporate law firms, partners in lucrative medical practices, Wall Street bond traders who receive multi-million dollar bonuses and invest some of their income in investment partnerships, this definition also includes wealthy executives of the nation’s largest corporations and financial institutions who rent out their vacation homes.
- Small businesses do not need an exemption from the 39.6 percent tax rate in order to prosper. During the Clinton years, when the top tax rates were at the levels to which they are slated to return to next year, small business employment rose by an average of 2.3 percent — or 756,000 jobs — per year. In contrast, during the Bush years when tax rates were lower, small business employment rose at only a 1.0 percent annual rate
- If an alternative, pro-small business policy is needed politically, Congress could provide additional low-cost loans to small businesses and/or temporarily extend the pending small business jobs tax credit, which (as CBO has indicated) would be much more cost effective in creating jobs to aid the weak economy than an extension of the top tax rates
Hot Topic
The Tax Compromise is Just the Start
While Congress and the President have reached a temporary deal on the Bush era tax cuts, there is still much work to be done. Click below to see what issues are still in play, and what’s up next for the tax debate.
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