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July 12, 2012

Job Creators and Taxes: Obama Plan Would Hurt Small Businesses, Jobs

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"The last thing you want to do is to raise taxes in the middle of a recession, because that would just suck up - take more demand out of the economy and put businesses in a further hole."

That was President Barack Obama in 2009, trying to reassure Americans that he was going to wait until after the recession to raise taxes. Now he's begun pushing again for higher taxes on the "wealthy," which actually would hit 1.2 million of the country's most successful job creators. As if the Obamacare tax hike and the rest of Taxmageddon weren't enough.

The tax increase du jour is a recycled one: the president's long-held plan to raise taxes on incomes above $200,000 ($250,000 for families). Interestingly, Obama is to the left of his liberal allies in Congress such as Sen. Charles Schumer (D-N.Y.) and House Minority Leader Nancy Pelosi (D-Calif.) on the definition of the "rich."

Schumer and Pelosi set the mark at those making more than $1 million annually. That is five times higher than Obama's $200,000 mark. Apparently even they recognize the president's plan would be too punitive on job creators (although they are still willing to stick it to the most successful job creators for the sake of class warfare).

This misguided plan would hurt Americans at all income levels because it would slow job creation. As the Heritage Foundation's Curtis Dubay explains in new research, the tax increase would fall heavily on important job-creating businesses that pay their taxes through the individual income tax, known as "flow-through businesses."

There has been considerable debate about whether flow-through businesses that pay the higher rates are job creators. A report from Obama's own Treasury Department, however, provides data that settle the point conclusively. For the first time, this report breaks out the number of flow-through businesses that have employees.

According to the Treasury study, 4.3 million of these small businesses employed workers in 2007 (the most recent year for which data are available). The Treasury report shows that 1.2 million, or 28%, of them earned more than $200,000 - the income threshold over which Obama's tax increase would apply. More importantly for job creation, those 28% of businesses earned almost all - 91% - of the income earned by flow-through employer-businesses.

Yet, the president says, "This isn't about taxing job creators; this is about helping job creators." Not exactly, Dubay says: "By pinpointing his tax increase on incomes over $200,000, Obama has maximized the detrimental impact that his tax increase would have on job creation. A higher tax bill would deprive the most successful flow-through employer-businesses of resources they would otherwise invest back into their businesses - and into hiring new employees."

Obama often states that his plan would raise taxes only on "the rich" to force them to pay their "fair share." But less job creation as a result of this tax increase would make it harder for unemployed Americans at all income levels to find new jobs. Most Americans would find those diminished opportunities anything but fair.

The list of prominent economists and influencers calling for Congress and Obama to stop Taxmageddon has been growing longer by the day, but the president and his allies had been content to continue to allow Taxmageddon to weigh on the economy and then deal with it in some fashion in the lame-duck period after the November election.

He was reluctantly drawn into the debate now - not because he is trying to lead on the nation's most important economic policy issue, stopping Taxmageddon, but because of recent dismal economic data capped off by the June jobs report.

The president seems to be trying to distract people from the bad economic news that reflects poorly on his policies. Instead of leading, he's reacting. And he's reacting with recycled rhetoric.

Obama has pushed for this tax increase ever since he started running for president in 2007. It's old hat by now, and since he has failed to get it through Congress for 3 1/2 years running, the proposal has nearly zero chance of prevailing now. Yet he continues pushing this unpopular, economically damaging tax increase even as the economy continues to languish.

The best thing the president and Congress can do for the economy is to stop Taxmageddon.

Amy Payne is assistant director for strategic communications at the Heritage Foundation.

First appeared in Milwaukee Journal Sentinel

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