The talking point I’m hearing is that allowing the Bush tax cuts to expire is going to hurt small business. You’ve heard it too, but here are a couple of gratuitous links for completeness.
one, two
As a small businessperson for almost 20 years, I can tell you this is NOT the end of the world for my business, or most others I know. In fact, avoiding the restored tax might even encourage a bit of a stimulus spending on the part of some small businesses. More after the jump...
Let’s recall people, the Bush tax cuts we are talking about expiring are income tax cuts for people whose annual PERSONAL income is > $250K. My small consulting business sometimes grosses over $500K per year, but that’s not my INCOME. My income is what I draw from the business as salary, after I have paid all of the other bills, including medical insurance, travel, subcontractors, marketing, computers, office supplies, insurance, accountants, telephones, etc.
The "crushing" taxation we are talking about is a 40 percent rate (rather than the current 33 percent for income between $250K and $370K or 35 percent for income over $370).
I don’t mind paying my share. An extra 5-7 percent on my income over $250K (when I make that much) is not going to kill me. It’s not even going to modify my behavior – much. To the extent it does, that might be a good thing...
Stimulus?
Before I briefly explain how this might become a stimulus, I have a request.
I respectfully request we not use this diary for the flame war entitled "NO ONE DESERVES TO MAKE MORE THAN 250K PER YEAR." Work 2500-3500 hours per year for ten, twenty, or thirty years and you will have an informed opinion and we can debate that elsewhere. Start a diary with that title, and I will be happy to participate.
I don’t begrudge small business people their income... most I know took a lot of risks and made a lot of sacrifices to build their businesses. Those who were successful are entitled to whatever income they choose to pay themselves. That said, most people I know don’t find their income in excess of $250K per year (when they get it) essential to forestall starvation.
Small businesses that survive are usually run by people pretty savvy about money. If every dollar taken as income past $250K only pays out 60 cents (actually less with state income tax... but I digress), that is a crappy rate of return. To the extent that income is optional, a businessperson will usually choose to invest in their business (capital investments, investments in staff salaries to improve recruitment and retention, investment in staff training, investments in marketing, investments in retirement, decreasing costs to be more competitive). Those investments can generally be made with pre-tax dollars.
Most small business people I know will not be crushed by this proposal. This is not an open invitation to return to 90 percent taxation, but given the debt and the likely stimulative effect, I think a return to 40 percent taxation would be fine.
Any other small business types out there with a different opinion?