Obama tax plan no small deal to small businessmen

Published on NewsOK Modified: December 10, 2012 at 3:27 pm •  Published: December 10, 2012
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WASHINGTON (AP) — President Barack Obama's plan to increase taxes on top earners would have only a small impact on the nation's economy, according to congressional budget experts. But don't tell that to small business owners facing a tax hike.

Obama's proposal would hit about 940,000 people who report business income on their individual or household returns, says the Joint Committee on Taxation, the official scorekeeper for Congress. That's only 3.5 percent of the people who report business income, but those business owners are projected to earn 53 percent of the $1.3 trillion in business income that will be reported on individual returns next year.

That, Republicans in Congress argue, makes those business owners an important engine for economic growth and job creation.

They recite it as gospel: Paying higher taxes will reduce the amount of profits business owners would otherwise re-invest in their companies, making them less likely to expand and hire more workers. Many economists agree that tax increases in general limit economic growth. But there are big disagreements about magnitude — how much relatively small changes in the top two income tax rates would affect the economy and job creation.

The Congressional Budget Office estimated last month that Obama's plan to increase taxes only on top earners would reduce economic growth by 0.1 percent of Gross Domestic Product next year, or about $16 billion. That translates into about 200,000 fewer jobs.

By comparison, letting all the tax cuts enacted in 2001 and 2003 expire would reduce economic growth by 1.4 percent of GDP, resulting in about 1.8 million fewer jobs, the CBO said.

"It's a very tiny portion of the cliff impact and it very much raises revenues and it does so in a fair way," Rep. Sander Levin of Michigan, senior Democrat on the tax-writing House Ways and Means Committee, said of Obama's proposal. "It will not stifle economic growth in any significant way."

Most of the expiring tax cuts were first enacted under former President George W. Bush and extended by Obama in 2010. This time around, Obama says he is determined to let the tax cuts expire on income above $200,000 for individuals and $250,000 for married couples. He wants to extend the Bush tax cuts for people making less.

House Speaker John Boehner and other Republicans have said they are open to more tax revenue through reducing or eliminating tax breaks. But Boehner opposes Obama's proposal to increase tax rates on high earners.

"Raising taxes on small businesses instead of taking a balanced approach that also cuts spending is wrong," Boehner, said recently. "It's only going to make it harder for our economy to grow. And if our economy doesn't grow, Americans don't get new jobs and the debt problem that we have will continue to threaten our children's future."

Republicans often relate the tax increases to small businesses because 94 percent of America's businesses are structured so that profits go directly to partners or shareholders who report the income on their individual tax returns. It's a way for business owners to avoid paying taxes twice on the same income — once at the corporate level and again when profits are distributed as dividends.

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