Myth Busters: The Administration's Small Business Tax Claims

Oct 15, 2012

A pedestrian walks past a rug store that's going out of business on Main Street in downtown Salt Lake City, Utah, U.S. Photographer: George Frey/Bloomberg News.

The administration claims to have cut taxes for small businesses 18 times. But Stan Veuger at AEI took a look at these instances and found that the math doesn't add up to a win for small businesses.

Of the 18 (temporary) cuts, 10 are still in place. Of those 10, 5 are holdovers from the previous administration. The remaining 5 cuts amount to--at most--$3 billion in 2013, according to estimates from the Congressional Budget Office, the Joint Committee on Taxation, and the Treasury Department. 

What does $3 billion mean in the grand scheme of the small business tax picture? Not much for the small businesses who will be hit hard under Obama's plan. Veuger writes:

According to a report by the Joint Committee on Taxation, approximately $690 billion of business income will be reported on tax returns subject to the marginal rate increases. A very conservative estimate based on IRS figures of the distribution of partnership and S-Corp income shows that only about 80 percent of this income is actually subject to the highest marginal rate, which puts the size of the tax hike at around 9.4 percent of 80 percent of $690 billion, or about $52 billion.

That $52 billion is much more than the sum of all tax breaks, which was about $3 billion. So it’s quite a stretch for the president to argue that he wants to cut taxes for small businesses. In fact, he wants to raise taxes on small businesses by an order of magnitude.

What does this mean for the affected firms? On average, an additional tax bill of $48,000. That’s a stunning increase.

To read more about how these taxes will inhibit job creation, click over toThe American



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