Obama’s Plans to Improve the State of the Economy Include Income Tax Increases that Fall Heavily on Small Businesses
With the current global downturn, it is clear that the new President-elect needs to have a plan to help struggling Americans and lift our nation’s distressed businesses out of a lagging economy.
President-elect Obama wants to raise taxes on income, capital gains and dividends for families earning more than $250,000 annually. (By the way, I’ve heard $200,000 and $140,000 as well throughout the campaign and by Vice President-elect Biden).
Under Obama’s tax plan, the top two marginal tax rates will increase from 33 to 36 percent and from 35 to 40 percent, while both the capital-gains tax rate and dividend tax will rise from 15 to 20 percent.
According to the plan, the extra revenues generated by these tax increases will be redistributed to lower-and middle income taxpayers through a hodge-podge of refundable tax credits. In the meantime, these “soak the not too rich” tax rates can do widespread economic harm.
Obama’s tax rate increases on income will fall heavily on small businesses, which create the majority of net new jobs. Here’s why: According to the IRS, half of all business income is taxed at individual (S-corporations, Partnerships and LLCs) rather than corporate tax rates, and about 2/3 of all flow-through business income is earned by small-business owners with annual incomes exceeding $200,000.
The bottom line: Up to a third of all business income is taxed at the two marginal rates Obama wants to raise.
While Obama’s tax plans may be aimed at generating extra revenue, the may inevitably harm small businesses, (which create the majority of new jobs).
The new presidential administration must be careful to institute policies that ultimately encourage economic growth rather than discourage it.
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Tags: Barack Obama, capital gains taxes, Joe Biden, small business taxes, Tax Reform
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