Political Animal


November 30, 2011 2:55 PM Looking out for small businesses

By Steve Benen

Democrats want to boost the economy with an extension of the payroll tax break, benefiting over 100 million American households. Fine, Republicans said, but Dems will have to pay for it. Fine, Democrats replied, proposing a modest surtax on millionaires and billionaires, ensuring that the tax cut wouldn’t add a dime to the deficit.

The GOP still isn’t happy. To hear House Speaker John Boehner’s (R-Ohio) put it, the surtax is impermissible because it would be a “job-killing tax hike on small businesses.”

This is a popular Republican argument. As Suzy Khimm explained, it’s also terribly misleading.

The millionaire’s tax would indeed affect about 30 to 40 percent of business income that’s reported on individual tax returns, rather than on corporate tax returns. But that income is concentrated among a very small group of small businesses. The tax would only affect about 1 percent of those the Treasury Department classifies as “small business owners.”

Just 2 percent of all business owners who file taxes through individual returns — including sole proprietorships, limited liability corporations, S corporations, and partnerships — have taxable income that’s more than $1 million, according to an August 2011 Treasury report. And just about 1 percent of those Treasury categorizes as “small businesses owners” would be affected by the Democrats’ proposed millionaire’s tax — about 273,000 in total. That number drops even further — to 51,000 — if you define “small business owners” as those earning at least 25 percent of income through their firm.

Jonathan Cohn had a good item last night, taking this a step further.

The purpose of this particular millionaire tax is to offset the cost of extending the payroll tax break set to expire at the end of this year. That tax break doesn’t simply help employees. It helps employers too.

Chuck Marr of the Center on Budget and Policy Priorities explains: “The bill’s payroll tax cut would not only boost workers’ paychecks by hundreds of dollars or more in 2012 but also cut the taxes of every small business. Employers would receive a tax holiday on fully half of their 2012 Social Security taxes on the first $5 million in payroll. If employers create jobs, they would pay no Social Security taxes on the first $50 million in increased taxable payroll.”

It adds a touch of irony to the GOP talking points. Republicans are willing to kill a Democratic proposal that would cut taxes on small businesses, ostensibly because the GOP opposes tax increases on small businesses.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.


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  • DAY on November 30, 2011 3:07 PM:

    -And this will all be explained, in simple language, to the entire nation on the evening news.
    Hardy Har Har! I slay me. . .

  • c u n d gulag on November 30, 2011 3:15 PM:

    I don't know about you, but I'm impressed by their consistent support of people in the top 1% of anything!

    Well, except for science.
    Or math.
    Or economics.
    Or sociology.
    Or biology.
    Or history.
    Or languages.
    Wait, this could take awhile.

    Ok, the top 1% of people with money, no matter how you slice it!

  • chi res on November 30, 2011 3:19 PM:

    Figure out someway to write the legislation to exempt the 51,000 small business owners from the millionaires' tax. Then see if the republicans will accept it.

  • bdop4 on November 30, 2011 3:25 PM:

    Truth is, if a corporation or business owner faces higher personal income taxes, they are actually more disposed to keep the money in the business and spending it on capital or other expansion measures. They hold it in the business and work to make their stock or other equity more valuable.

    The GOP position is backasswards and a lot of people have bought into it.

  • deanarms on November 30, 2011 3:39 PM:

    Which brings us to that great job creator Howard Schultz of Starbucks and those irritating bands he's selling for $5. Howard is among those who presumably would be hit with this tax and he is also a "job creator" counting all those relatively good jobs he's created at the thousands of Sbux across the country. The latter statement is not snark. Given the health benefits and the tip box a barrista gig is a relative safe harbor in this abysmal economy. Howard is selling those bands to either create a pool of new jobs (not clear to me how he'd do that) or create an alternate political party because President Obama is part of the problem in refusing to sell the 99% down the river to placate Republican demands. See also, Tom Freidman and Americans Elect.

    Howard, let me suggest this: Give the extra $5 to each barrista who works for you every day. If those thousands of people have some extra dough in their pockets -- say $25 a week, every week -- they'll spend it. And when they spend, they'll be doing their own part toward stimulating demand, to cause other employers to buy more inventories and hire more people. Not that complicated. And if every "job creator" out there did the same thing with the employees they do have, we might actually start to see a tangible upsurge to the economy. But if you're not willing to do that Howard, don't beef about gridlock in Washington, because by doing that you are being more dangerous and counterproductive that John Boehner could ever think of being.

  • Ron Byers on November 30, 2011 3:46 PM:

    Lets see if I have this right, the Republicans want to raise taxes on the job creators to avoid raising taxes on the trust fund babies?

  • biggerbox on November 30, 2011 3:50 PM:

    Don't you see? In GOP economics, it's MUCH more efficient to make sure rich folks have money they MIGHT use to create new jobs than to actually make it cheaper to create new jobs by lowering the taxes on them.

  • Area Man on November 30, 2011 5:06 PM:

    Common sense should tell you that $1 million per year is an unreasonable amount income from your average mom and pop small business. If those kinds of profits were typical, it would be a sign of a massive market distortion. Why would anyone bother spending years getting a professional degree when all the money is in restaurants, movie theaters, and corner groceries?

    The irony is that Republicans constantly dredge up small business owners as the victims of any possible tax increase, because the public sympathizes with them as struggling, middle class workers. Not multimillionaire capitalists.

  • AMS on November 30, 2011 7:03 PM:

    Area Man: No, people do not go along with Republican arguments about low taxes for business owners because they sympathize with them as fellow struggling middle class workers. They do so because the Republicans have styled those with high incomes as "job creators"; the clear implication is that the jobs of ordinary folks are at risk if taxes rise on high-income people. The public has also been influenced by the Republican talking point that anyone who supports higher taxes on the wealthy is envious, resentful of success, and engaging in class warfare. No one wants to be such a person.

  • Th on November 30, 2011 7:46 PM:

    Don't forget that most small business owners pay both halves of the SS tax on their personal income so would get double cuts under Obama's expanded payroll tax cut. If the payroll tax is cut in half on both sides, a small business owner gets a cut of $6826 if they make over the maximum of $110100. They would have to make over $1,210,000 before any of the surcharge would catch up to them.

  • Cal Gal on December 01, 2011 12:31 AM:

    When you understand that under the Republicon's definition of "small business," Bechtel is a small business, you'll know what they're all about.

  • patrick II on December 01, 2011 1:49 AM:

    If your business is paying you over a million dollars a year, it is not a small business. It may not have a lot of employees but it is not small.

  • akindependent on December 09, 2011 11:16 AM:

    It's too bad democrats are so bad at messaging that they can't take advantage of the fact that small businesses will be paying higher taxes because republicans are protecting the uberwealthy from a modest increase in their marginal tax rate.
    Democrats missed another opportunity when the unemployment rate dropped to 8.6%. What catagory of jobs posted a loss? Construction jobs were down 12%. That was an opportunity for renewed calls for infrastructure spending.

  • zandru on December 09, 2011 2:14 PM:

    bdop4 is right - studies have actually shown that when corporate tax rates are increased, businesses plow more of their profits back into the business - so they'll pay less tax. Lower corporate rates means officers can give themselves higher salaries and higher dividends to the stockholders, rather than investing in the business.

    Another problem with people's perception of small biz and the millionaire's tax is that people don't understand the difference between gross income and taxable income, and they don't distinguish between gross receipts and profit. Remember "Joe the Plumber"?

    When you consider how much gets deducted via your Schedule A (personal) and the allowable business expenses (Sched C/1120 or whatever), having over $1,000,000.00 left to tax is rather significant.

    And seriously - it ought to be enough to live on. They could tax your super-million 90% and you'd still be doing remarkably well.