Obama’s Tax Plan Would Affect 3.5% Of Small Businesses

July 10, 2012 11:00 a.m.

The GOP’s central argument against President Obama’s renewed push to let taxes rise on incomes over $250,000 is that it’ll target small businesses. The party’s rhetoric obscures the fact that the plan will hike taxes on just a minor fraction small business filers.

“What the President is proposing is therefore a massive tax increase on job creators and on small business,” Romney said Monday. “Small businesses are overwhelmingly being taxed not at a corporate rate, but at the individual tax rate. So successful small businesses will see their taxes go up dramatically and that will kill jobs.”

But to what extent would Obama’s tax plan actually affect small businesses?In its latest estimate last month, Congress’s nonpartisan Joint Committee on Taxation found that in 2013, just 3.5 percent of small business tax filers would pay a higher rate — about 940,000 individuals, many of whom are lawyers and doctors in partnerships. But those few percent account for 53 percent of all small business income.

GOP aides accept those facts but they say those few small businesses are the ones overseeing growing companies whom the nation is counting on to hire. According to a variety of analyses, the lion’s share of the tax hike would be absorbed by Americans earning well over $1 million.

Late in 2010, when the same debate played out, William Gale, co-director of the nonpartisan Tax Policy Center, called it a “myth” to suggest that ending the tax cut on top marginal rates would hurt small businesses.

“This claim is misleading,” Gale wrote in the Washington Post. “If the objective is to help small businesses, continuing the Bush tax cuts on high-income taxpayers isn’t the way to go — it would miss more than 98 percent of small-business owners and would primarily help people who don’t make most of their money off those businesses.”

In a floor speech about dueling legislative proposals, Senate Majority Leader Harry Reid (D-NV) on Tuesday mocked the GOP notion of a small business, arguing it encompasses “fabulously rich so-called small business owners like Kim Kardashian and Paris Hilton.”

Republicans used the small-business argument in the 2010 lame duck session, when they forced the president and Democrats to back down and extend all of the Bush tax cuts for 2 years. This time around, Obama has promised not to sign a bill extending the high-end tax cuts. And the GOP is doubling down on the claim.

“The president is out there calling for a tax increase on Americans job creators. How raising taxes on small business men and women will help our economy, I can’t quite figure out,” said House Speaker John Boehner (R-OH). “And frankly I don’t think the president can either.”

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