House Democrats aim to show a united front when it comes to allowing the largest tax increase in American history, but an editorial today, in The Wall Street Journal disproves the case. House Democrat, Bobby Bright, of Alabama told The Hill "I don't care if it's the wealthiest of the wealthy. You don't raise their taxes. In a recession you don't tax, burden and restrict." While individuals and families will experience tax hikes across the board, small businesses are going to be hurt the hardest.
The reality is that the increase in the top marginal income tax rate to higher than 41% will hit the most profitable small businesses especially hard. That's because millions of business owners pay individual rates under Subchapter S of the tax code. Today, this means they pay the same top rate as the Fortune 500: 35%. But if the 2003 tax rates expire, they'll suddenly pay more than Goldman Sachs.
New data from, of all places, the Democratic-run Joint Committee on Taxation show that in 2011 roughly 750,000 taxpayers with net business income will pay the highest marginal rate of 39.6% or the next highest bracket of 36% (up from 33%). About half of the roughly $1 trillion of total net business income will also be reported on those returns. In a stroke, that will make tens of billions of dollars unavailable to invest or to hire new workers.