President Obama is advocating a tax increase of 3.6% on income above $250,000. That means someone making $250,000 in taxable income after all deductions for mortgage interest, charitable contributions, state and local taxes, standard deductions, etc., would not be expected to pay one thin dime in extra taxes.
Yes, for small business owners who are sole proprietors, partnerships, or Subchapter S corporations, their business income is personal income. It is the same thing. This is why John Boehner and Republicans are screaming that the proposed tax increase is a tax on small businesses. Keep in mind that only a tiny percentage of small business owners have taxable income north of $250,000. But for those that do, so what?
If, after all personal and business deductions, including stuff like depreciation, interest, company car, cell-phone, life insurance, entertainment and meals, a "job creator's" income is more than $250,000, how does a 3.6% tax increase require him to fire or not hire workers?
Employment by business owners isn't an act of altruism. If an employer can make more money by hiring workers, that employer will hire workers regardless if his personal marginal tax rate is 35% or 39.6%. If an employer can make more money by firing workers, he will fire workers regardless of what his marginal tax rate is. The argument that employers won't be able to afford their workers if their tax rates increase necessarily assumes that employment is a charitable endeavor. Employers seek to maximize profits. They will hire and fire employees according to what maximizes profits. The business owner's marginal income tax rate is not relevant to the marginal utility of an employee.
Having said that, lets look at the numbers. If the tax increase on high income earners goes into effect, a $251,000 income would be subject to a $36 tax increase. Ah, the tyranny! At $300,000 the increase would be $1800. At $500,000, it would be $9000. At $1 million, it would be $27,000. Think about this. A person whose taxable income, after all deductions for mortgage interest, charitable contributions, etc, is $1 million, would be left with $650,000 after taxes at the current rate. With the higher rate, that individual would be left with only $623,000. So John Boehner would have you believe that at $650,000, everything is just hunky dory, but at $623,000, "OMFG, we need to fire some workers!"
Now can we all agree this is total bullshit?