More Truth About Small Business

In August, 2011, the Office of Tax Analysis of the Department of the Treasury produced a study regarding the income of small business.  It was determined that for the tax year of 2010, small business reported taxable income of $335 billion dollars.  This income came from 9.4 million small business owners.  Based upon these figures, the average small business taxable income was $35,638, far below the $200,000 threshold that would be affected by an increase in the top two marginal tax rates.  While there are some small businesses that have income that would exceed the $200,000 threshold thus being subject to a higher tax, for the most part, those are made up of professional enterprises (e.g. lawyers, accountants, doctors, dentists, consultants) and at most would account for less than three percent of small businesses.  One other group of small businesses include major business enterprises that through reorganization and stock re-purchases have changed ownership status from corporate to S corporations.  In many of these cases, various operating divisions have been spun off as separate S corporations.  The purpose of these re-organizations was to avoid paying tax on corporate income, having income of S corporations pass through to the owner in the form of dividends, and permit the company and owner to reduce liability for payroll taxes by having the income show up as dividends rather than salary or wage income.  Of course, Boehner and company do not wish these facts to become common knowledge as it disproves their arguments against raising taxes on the top two marginal rates.  The reality is contributors to Republican campaigns have a far greater individual personal interest in keeping the top two marginal tax rates as low as possible as the lower rates on income combined with low rates for dividends and capital gains account for the increased wealth of the top ten percent of American taxpayers.