A national small business advocate argues that a proposed Democratic tax policy will kill 710,000 jobs over the long run and would shrink the economy by 1.3 percent.
According to the Associated Press, Senate Democrats are floating a drafted bill - as proposed by President Obama - that "would keep income tax rates where they currently are for families earning below $250,000 a year and individuals making less than $200,000.
"Obama and Democrats would let the tax cuts enacted a decade ago on those earning more than that expire, leaving them facing a top income tax bracket of 39.6 percent.
"The highest earning Americans would pay a top rate of 23.8 percent for capital gains and dividends next year under a $272 billion, one-year extension of tax cuts."
However, a report released Tuesday by the National Federation of Independent Business shows "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 explains. The group says its research shows around 75 percent of all small businesses are organized in such a manner.
S corporations and the like pass income, losses, deductions and credit through to their shareholders, who report this income and losses on their personal tax returns and are taxed at their individual income tax rates. This way, S corporations are not taxed twice on corporate income.
“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 organization also notes the president's health care reform law adds to the tax increases high-income earners will face in 2013. This is due to the Medicare tax increase from 2.9 percent to 3.8 percent and the extension of this tax to unearned income.
The NGIB study - which coordinated data with Ernst & Young - finds that the combined legislation would cause the top tax rate on pass-through business income to jump from 35 percent to nearly 45 percent.