This week Congress will vote on President Obama’s proposal to extend and expand the payroll tax cut for working families and to add two new payroll tax cuts for employers. These tax cuts would benefit 160 million working Americans and their families, would lower taxes for employers, especially small businesses and those who are expanding their payrolls, and would provide the economy a much needed boost for the coming year.
These tax cuts can be fully paid for by asking the most fortunate Americans to pay a modest 3.25 percent surcharge on incomes over $1 million. Contrary to recent statements made by some in Congress, this surcharge would affect only a very, very small number of small business owners.
Specifically, a recent discussion paper
by Treasury’s Office of Tax Analysis shows that only 1 percent of all small business owners have adjusted gross income over $1 million and would be affected by this surcharge. Not only will the remaining 99 percent of small business owners be protected from paying this surcharge, they will receive a net benefit
from the employer-side payroll tax cuts.
The percentage of affected taxpayers who earn a significant share of their income from small businesses is also much smaller than the opponents of the Senate Democratic plan claim. Critics of the plan often use a definition of “small business” that includes many investment managers, lawyers and extremely wealthy people who are not by any common sense definition small business owners. In fact, more than half of the top 400 earners – whose average annual income was $271 million – would qualify as small business owners under their definition.
Moreover, because the surcharge applies only to income above $1 million, even much of the actual small business income earned by these taxpayers would not be affected by the surcharge.
The fact is that the vast majority of small businesses would benefit from the President’s proposals. The employee-side tax cut will support demand, which is the most important thing businesses need, and the employer-side tax cuts will give small businesses extra room to hire and invest. These benefits significantly outweigh the impact of the surcharge, which will affect only a very small fraction of the wealthiest small business owners.
Jenni LeCompte is Assistant Secretary for Public Affairs.