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Tax plan will hit small businesses

Tuesday, December 11, 2012

(Photo)
Susan Hester, right, and John Long listen to Jebediah Morris outside Rep. Jo Ann Emerson’s Cape Girardeau office Monday evening during a national candlelight campaign against cuts. About 15 people gathered for the event to keep pressure on Congress to end tax cuts to the richest 2 percent, and to refuse any cuts to Social Security, Medicaid and Medicare.
(Laura Simon) [Order this photo]
WASHINGTON -- 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. Don't tell that to small business owners facing a tax increase.

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 reinvest 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 the 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 revenue, 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.

Under Obama's plan, the 33 percent tax rate would rise to 36 percent on taxable income above $231,000 for a married couple filing jointly. The top tax rate would increase from 35 percent to 39.6 percent on taxable income above $397,000.

Obama's plan also would phase out the personal exemption and gradually reduce itemized deductions for individuals making more than $200,000 and married couples making more than $250,000. The top capital gains tax rate would rise from 15 percent to 20 percent. Qualified dividends, which are now taxed at a top rate of 15 percent, would be taxed as ordinary income for top earners, or at a top rate of 39.6 percent.

That, some business owners complain, would leave them with less money to hire workers or keep the ones they have.

"We're trying to encourage people to go out and hire and take risks," said Brian Reardon, executive director of the S Corporation Association. "If you are reducing the marginal value, you are reducing the incentives for folks to take that risk."

An S corporation is a common business structure in which profits flow directly to shareholders who report the income on their individual tax returns.

Business owners note that they often pay taxes on profits they don't necessarily receive. For example, if a person borrows money to start or expand a business, he or she can use some of those profits to repay the loan, but only the interest portion of the loan payment is tax deductible. When business owners use profits to buy new equipment or make other upgrades, it often takes several years to write off the cost of those upgrades, depending on depreciation rules.

Dan McGregor, chairman of McGregor Metalworking Companies in Springfield, Ohio, said he and the other six shareholders in the business are looking at a tax increase of $250,000 to $300,000 next year under Obama's plan.

Under Obama's plan to increase the top two income tax rates, a taxpayer would have to have an income of around $4 million -- depending on how it's structured -- to face a tax increase of $250,000.

McGregor's company, which has 365 employees at five locations, does about $80 million a year in sales, McGregor said. Each year, a portion of the profits is distributed to shareholders, along with money to pay taxes. The rest, he said, is invested back into the company.

If taxes go up, distributions to shareholders must go up to pay the higher taxes, leaving less money to reinvest in the business, McGregor said.

"I feel a $40,000 reduction is the loss of one job, so if it's a $200,000 tax increase, that's five jobs," McGregor said.


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http://www.usdebtclock.org/

Look at that mess taxing the rich is not the answer and having an income of $250,000.00 is sure not rich. 800 billion over a ten year period not even a drop in the bucket compared to the debt of over 16 trillion debt and mounting.

-- Posted by swampeastmissouri on Tue, Dec 11, 2012, at 7:45 AM

People clearly are ignorant about how economics actually work. They only know what they are told by Obama and network news. They don't care that what they recieve from the government was taken from someone else. They only care about themselves and blame everyone but themselves for their poverty. They were raised in poverty and on entitlements and are comfortable with continuing their chosen lifestyle. It is ironic that most wealthy people started out in poverty and did something about it only to have their wealth taken away.

-- Posted by jadip4me on Tue, Dec 11, 2012, at 8:53 AM

cut spending!

-- Posted by TommyStix on Tue, Dec 11, 2012, at 9:00 AM

Just like at home, cut spending and get more income by working another job. Don't like it? Tough. Your free ride is over.

-- Posted by Mudflopper on Tue, Dec 11, 2012, at 9:37 AM

There is an answer to all of this. Sign the secession petition and secede from Obamacare, High Taxes and Wealth Distribution. As the commercial says "It's your money"

https://petitions.whitehouse.gov/petitio...

-- Posted by mobushwhacker on Tue, Dec 11, 2012, at 11:10 AM

I understand all of this but have we looked at the turn at the casino 5.37 million in one month

-- Posted by falcon2412 on Tue, Dec 11, 2012, at 11:46 AM


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