Obama's Budget To Hit Small Businesses Hard, Republicans Warn

by Mike Godfrey, Tax-News.com, Washington

27 April 2009

The senior Republican members of the Congressional tax-writing committees have warned that small businesses would bear the brunt of marginal tax increases proposed by President Obama in his budget plan.

Senator Chuck Grassley, ranking member of the Senate Committee on Finance, and Representative Dave Camp, ranking member of the House Committee on Ways and Means, have released an analysis which they argue shows how the administration’s lack of consideration for the fate of small businesses in the current economic climate will have a negative effect on its attempts to create new jobs.

“The President and Republicans agree that 70% of new jobs will come from small businesses. Yet, the stimulus contained very little tax relief for small businesses - less than one-half of one percent of the stimulus bill,” the Congressmen said. “Now the President wants to increase taxes on some small businesses, even though they’re most likely to create jobs."

If small business owners are hit with a tax increase, we can say good-bye to a chunk of new and existing jobs,” they continued. “Those who say only a handful of small business owners will face a tax increase need to wake up and smell the coffee.”

According to the Grassley/Camp analysis, which was based on figures produced by the Joint Committee on Taxation, in 2011, the President would tax USD88bn of net positive business income at the 36% rate and USD349bn at the 39.6% rate. This tax increase would raise USD18.694bn in 2011.

Multiplying this over ten years suggests the proposed higher marginal rates are likely to cost small business owners somewhere in the neighborhood of USD187bn over the ten-year budget window, they said. That equates to roughly 55% of the revenue raised under the President’s proposed higher marginal tax rates coming from tax increases on net positive small business income (USD187bn out of USD338.76bn).

The Joint Committee on Taxation also found that approximately half of the income (47%) targeted by the President’s marginal tax rate increase proposals in 2011 would be earned by small business owners.

The Congressmen said that this data is consistent with Gallup survey results showing that approximately half of the small business owners who employ 20 or more workers would be hit by the marginal tax rate increases proposed by the administration and congressional Democratic leadership. These small businesses with 20 or more workers employ nearly two-thirds of all small business workers, according to Small Business Administration data.

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