December 04,2012

Press Contact:

Julia Lawless, Antonia Ferrier, 202.224.4515

President’s $2 Trillion Tax Hike Hurts Small Business’s Ability to Grow, Hire, & Invest

Instead of making it easier for American small businesses to invest, grow, and hire, the President’s $2 trillion tax hike will cripple these job creators.  Here’s how:

Massive Job-Killing Tax Hikes: By raising the top two marginal individual tax rates, many small businesses owners, who file their tax returns on the individual side, will see their federal income tax rates jump to as high as 39.6 percent.

  • According to the Joint Committee on Taxation, nearly 1 million flow-through businesses would be hit immediately with these tax rate hikes on January 1, 2013.
  • That same study shows that more than half - 53 percent - of all flow-through business income will be subject to this tax hike. This is especially harmful to small business, because virtually all small businesses are organized as flow-through entities such as S corporations, partnerships, and LLCs. (See at IRS Statistics of Income Integrated Business Data)
  • The President’ small business tax hike plan would also destroy 700,000 American jobs and lead to lower paychecks for workers, according to an Ernst & Young study.
  • According to the National Association of Manufacturers (NAM), two-thirds of manufacturers pay income taxes at individual rates and would get with hit with the President’s job-killing tax hike plan.

Tax Hikes on Retirees & Investment: Millions of Americans, including small businesses owners and retirees, rely on investment income. The President’s plan nearly triples the top tax rate on dividends from 15 percent to 43.4 percent and raises the top capital gains rate from 15 percent to 23.8 percent – a massive 59 percent increase.

  • According to the Joint Committee on Taxation, there are nearly two million C Corporations in the U.S. that are subject to taxation at both the corporate and individual level.  Many of these C Corporations are small businesses whose owners will pay nearly triple the rate of tax on the dividends they receive from their small business.   
  • According to a study by the firm Ernst & Young, after taking into account corporate, investor (with the President’s proposed increase), and state taxes, the top rate on dividends will rise to 68.6 percent on January 1, 2013, which is the highest in the world among the Organization for Economic Co-operation and Development (OECD) and BRIC (Brazil, Russia, India, and China) countries.

Limitation on Itemized Deductions: Limiting the value of itemized deductions at 28 percent will reduce the value of itemized deductions such as the charitable deduction and home mortgage interest deduction for small business owners and other individual Americans. Even more, this provision discourages saving for retirement.

  • Many small business owners will be pushed into one of the top two brackets as a result of their small business income, even if they don’t take a penny out of the business for themselves.  Ultimately, these entrepreneurs will lose a large portion of their itemized deductions, simply because they operate a small business.
  • This provision will also discourage small business owners from keeping or setting up retirement plans which, in turn, will reduce the number of workers with access to a retirement plan at work. According to American Society of Pensions Professionals and Actuaries, access to a retirement plan at work is the single most important factor in promoting adequate retirement savings.  

Data from the Employee Benefit Research Institute (EBRI) shows more than 70 percent of workers making $30,000 to $50,000 contribute when covered by a plan at work compared to less than 5 percent of workers at the same income levels save on their own in an IRA when there is no employer plan.