Democrat Health Care Bill to Raise Taxes On Small Businesses

Press reports indicate that the Democrat health care bill to be introduced later this week will be partially paid for by imposing a surtax on individuals with income in excess of $250,000 a year.  Because most small businesses do not pay corporate income taxes, and instead pay taxes on small business income on their individual returns, small businesses will be particularly hard hit by this tax increase.

While precise data is not currently available on the Democrat proposal, data is available on the number of small businesses that pay taxes at the top tax rate.  Since the top tax rate currently begins at $372,950, all of these individuals will be impacted by the proposed tax increase. According to data compiled by the Urban-Brookings Tax Policy Center from IRS data, 50.3% of all filers in the top bracket earn at least 25% of their income from business activities.

The More Employees, the More Likely to Get Hit

If a tax filer earns 25% of their income (at least $93,000) from small business activities then it is fair to say they are active small businessmen. In fact, the higher the income the more likely they are to have employees. A National Federation of Small Businesses (NFIB) commissioned survey of member and non-member small businesses polled small business owner total household income (from all sources, including from other adult members of the household) likely in excess of $250,000 (i.e. those that would be hit by the proposed tax increase).  The survey found that out of all small businesses, 6.4% of those with 1-9 employees; 21% of those with 10-19 employees; and 40% of those with 20-249 employees would be impacted by a tax increase on incomes above $250,000.
(Source: Senate Finance Committee staff analysis of National Federation of Independent Business National Small Business Poll, 2007)