Saturday, September 4, 2010

The Serious Negative Impact on the Economy from the Coming Higher Business Taxes

The life blood of any economy is businessmen producing product. If you tax them they will simply have less money to invest in production. President Obama's tax on small business will be much more damaging than the propaganda out of the White House would have you believe.

In a recent WSJ op-ed, Kevin Hassett and Alan Viard explain:

Vice President Joe Biden harshly rejected House Minority Leader John Boehner's assertion that the hikes would harm small businesses...[Biden's assertion that only] 3% of small one of the more misleading statements in the long history of economic propaganda....

The 3% figure, which is computed from IRS data, is based on simply counting the number of returns with any pass-through business income. So, if somebody makes a little money selling products on eBay and reports that income on Schedule C of their tax return, they are counted as a small business. The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes.

The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That's the number to look at, not the 3%.
Bottom Line: The tax on small business will have a serious negative impact on the economy. It will result in disincentive to produce and leave businessmen with less money to invest. It's a double whammy. These tax increases are very reminiscent of the tax increases placed on corporations during the Great Depression. Those tax hikes played an important role in intensifying the Depression. Similar tax hikes this time around will do the same.

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