An extension of the high-income Bush tax cuts would, in
essence, constitute a massive tax cut for very wealthy individuals who
overwhelmingly aren’t small business operators. Analysis by the Urban Institute-Bookings Tax Policy Center finds
that extending the tax cuts for people over $250,000 of income ($200,000 for
single filers) would overwhelmingly benefit the highest-income taxpayers: 82 percent of the value of the tax cut would
flow to filers with more than $1 million in adjusted gross income, who would
get an average tax cut of $164,000 a piece.
The arguments against allowing the high-end tax cuts to
expire on schedule echo those made against President Clinton’s proposed 1993
tax increases, which set marginal rates at the levels to which they are set to
return when the Bush rate cuts expire.
Critics claimed at the time that those tax increases would seriously
harm economic growth and even send the economy back into recession. As it turned out, job creation and economic
growth proved significantly stronger following the 1993 tax increases than
following the 2001 Bush tax cuts.
Further, small businesses generated jobs at twice the rate during the
Clinton years than they did under the Bush tax code
In 2011, the Treasury Department’s Office of Tax Analysis
took a more in-depth look at the issue using a more realistic definition of
“small business” and it shows that more than 90 percent of small-business
owners wouldn’t be affected by Obama’s proposal to raise taxes on individuals
making over $200,000 and couples making over $250,000. Moreover, about 90
percent of those who would be affected by the tax increase are not
small-business owners.
Using the Treasury report’s “narrow” definition of small
business — one with $10 million maximum in income (or deductions) — and
defining “owner” as anyone who gets at least one-fourth of all his or her
income from a “small business,” then:
■Only 8 percent of small-business owners have income of
$200,000 or more. So 92 percent of small-business owners wouldn’t be affected
by Obama’s proposal. (Table 14, Small Business Owners, Narrow Definition) They
account for 57 percent of the income of small-business owners, so Boehner would
have been on more solid ground had he said — as his spokesman says he meant to
say — “small-business income” instead of “small-business owner.”
■Of the 1,191,000 taxpayers who fall into the top two tax
brackets that would see increases under Obama’s plan, only 133,000 (11 percent)
reported any small-business income at all, and only 105,000 (9 percent) qualify
as small-business owners under the treasury’s definition.
■Furthermore, despite Boehner repeatedly referring to small
businesses and “job creators” interchangeably, the notion that small businesses
are necessarily “job creators” is also a big exaggeration. “Slightly more than
one-fifth of small businesses” qualify as an “employer,” the report states.
Millionaires own only 3.3 percent of small businesses. Of
the 3,808,000 returns with small-business employer income, only 126,000 were
filed by employers with an adjusted gross income of more than $1 million.
Adjusted gross income is a taxpayer’s yearly gross income minus certain
adjustments provided for in the tax code, such as contributions to deductible
retirement accounts or alimony paid by the taxpayer. The vast majority (76
percent) of small businesses are owned by individuals who make under $200,000 a
year, and most of the rest (21 percent) are owned by individuals who earn
between $200,000 and $1 million. For the most part, small-business owners are
not millionaires. Most of them aren’t even close.
Millionaires take home only 19 percent of small-business
employer income. Small-business owners made $183 billion in 2007. Most of this
income was earned by employers who made less than $1 million that year. In
fact, the majority was earned by employers who make less than half that; 60
percent of small-business employer income went to individuals who earned less
than $500,000. About a quarter was earned by employers making less than
$200,000 a year. Most of the income earned through small businesses does not go
to millionaires. It goes to businessmen and businesswomen who make much less.
(See Figure 2)
Only 2.5 percent of millionaires’ income is from small
business. The Office of Tax Analysis report finds that millionaires earned only
$35 billion through small businesses in 2007 while the U.S. Internal Revenue
Service’s Sources of Income statistics show that millionaires in the United
States earned a total of $1.4 trillion that year. This means that only 2.5
percent of all millionaires’ income comes from small business. By and large,
millionaires are not small business owners. (
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