Higher taxes will hurt economy, small business

Special to
Daily Court Review

New research, by the National Federation of Independent Business, shows that allowing tax relief on the top individual rates to expire will hurt job creation and the economy. The report, published by top accounting firm Ernst & Young, shows raising top individual rates would hurt small-business job creators in particular.

"This report clearly shows that raising taxes on job creators will have a negative impact," said NFIB President and CEO Dan Danner. "It is absolutely the wrong time to hike taxes on millions of business owners. On top of that, the threat that small businesses could get pushed over the Fiscal Cliff in order to push through this tax increase is creating an immeasurable amount of uncertainty among small businesses trying to plan for the future."

The study, authored by Dr. Robert Carroll and Gerald Prante, estimated the effects of the policy advocated by President Obama and some Members of Congress to allow the top tax rates paid by small-business owners to rise sharply starting January 1, 2013. It finds that over time the economy would be 1.3 percent smaller and there would be 710,000 fewer jobs. More than 72 percent of S corporation income is earned by the half-million S corporation owners who pay the top two rates.

Increasing individual rates directly impacts small businesses organized as S corporations, partnerships, LLCs and sole proprietors, also known as "pass-through" businesses. NFIB research shows around 75 percent of all small businesses are organized in such a manner.

Together with the new 3.8 percent tax on investment income introduced in the health care reform law, the study finds that the top tax rate on pass-through business income would skyrocket from 35 to nearly 45 percent.

The study was commissioned by NFIB in partnership with the S Corporation Association, the U.S. Chamber of Commerce, and the Independent Community Bankers Association.