Tuesday, December 14, 2010
what is a small business, and why lowering taxes on the top bracket largely benefits wage earners, not "small business" owners
The government only taxes income, after business expenses deducted, over the $200,000/$250,000 for couples, in the top tax rate. This means the gross income minus all business expenses, including labor. If the government allowed the Bush tax cuts to expire for the top tax bracket, only 2% of tax payers who reported incomes from a business would see an increase in their taxes. This means only 2% of "small" business owners net over $200,000 a year. Reducing the tax rate for income earners below $200,000 would lower the taxes for the other 98%. Furthermore, 32.5% of those in the top tax bracket earn at least 50% of their total income from a business type source. So the other 67.5% earn the majority of their income in another way. None of which creates the need for employees directly. The thought process that leads one to believe a small business would apply a government stimulus, oops, I mean a reduction in taxes, to invest in his/her company by hiring more workers, would only lead one to believe those who make the majority of their income from, say, capital gains to invest in their portfolio. This too does not directly create jobs. Lastly 75% of the top income earners report income from s-corps. These income earners can be one of many, but less than 100, shareholders or the sole benefactor. Those who make their income from s-corps, forgo corporate or business taxes and penalties for breaking tax code. If there are five shareholders and their business nets $999,999, that income, if it were their only source of income, would not be taxed in the top tax bracket, but the next lowest. The extreme example would be a s-corp with 100 shareholders; their business would have to NET over $20,000,000 to for each individual's share to be taxed with the highest tax rate. $20,000,000 in profits is impressive, but you would have a hard time convincing anyone it is a small business. I do not know the average number of shareholders in a $999,999 a year s-corp, but if it is more than five, then those shareholders have another source of income and giving them a break on that income has no way of creating jobs. Once again lowering taxes for the tax bracket below the top tier would be more appropriate if real small business owners were your concern.