The U.S. House of Representatives will vote this week on proposals for dealing with the Bush-era tax cuts. This includes a proposal that passed the U.S. Senate last Wednesday [July 26] that will extend Bush-era income tax cuts for every American, but end extra breaks for the richest 2 percent (on take-home income beyond the first $250,000). As a small business owner – my wife and I own and operate an auto repair shop with a dozen employees – I’m all for this. Especially the part about ending extra breaks for the top 2 percent.
Surprised to hear that? If so, I couldn’t blame you, not after the debate about the Bush tax cuts has been so thoroughly confused by claims about the possible impact on small businesses. House Speaker John Boehner and other defenders of the tax cuts for the top 2 percent have repeated over and over again the assertion that ending special breaks at the top would harm small businesses. Unfortunately for Speaker Boehner’s argument, repeating a false claim over and over again doesn’t make it true.
Let’s look at some basic facts.
In reality, only a tiny fraction – roughly 3 percent – of taxpayers who report any form of business income on their tax returns earn enough to be impacted by the tax rates for take-home income over $250,000. What’s more, this small fraction includes hedge fund managers, corporate lawyers, and K Street lobbyists – not who most Americans think of as small businesses. So the number of real small businesses taking home more than $250,000 is even fewer.
Furthermore, the “trickle down” theory used to justify extra tax cuts at the top simply doesn’t work. When the Congressional Budget Office examined close to a dozen options to jumpstart economic activity and job creation in early 2010, including tax cuts for everyone, it found that extending special tax breaks for the richest Americans was the least effective of all 11 options for creating jobs and boosting the economy.
Finally, claims about how ending these special tax cuts will impact job creation ignore the most basic fact about what drives small business hiring. Customer demand is what drives my hiring decisions, not tax cuts. We hire when we see an opportunity, when we’ve got more customers walking in the door asking us to fix their cars than we can serve with our current workforce. It has nothing to do with the tax rate on our take-home income.
And here’s another thing: small business owners pay personal income taxes only on the net income we take out of our businesses – after deducting payroll and other business expenses. So if we take operating income and plow it back into hiring, we don’t pay taxes on that money either way. The marginal tax rate on our take-home income doesn’t even factor into that equation.
So if politicians really want to help small businesses, they should focus on how to bring more customers in our doors and stop wasting time defending extra tax cuts for the richest Americans. How do we get more customers? Rebuild our crumbling roads and bridges, stop cutting education, quit laying off teachers and first responders, and extend the Bush tax cut for 98 percent of Americans – that’s the way to bring more customers into our businesses. But if we take the nearly $1 trillion we would raise from ending the extra Bush tax cuts for income over $250,000 and hand it right back to the top 2 percent, we won’t have the resources to do these things.
Here’s the bottom line: the Bush tax breaks for the top 2 percent are not helping America’s small businesses and they’re not helping our economy – they’re just another giveaway at the top. When politicians steal the good name of small business to advance a special interest agenda that’s not really about us at all, that’s a form of theft – political identity theft. Small business owners have an obligation to set the record straight.
It’s time to stand up for the good name of small business. The Senate has already done the right thing. Now the question for every member of the House of Representatives is, will you stand with real small businesses and vote to end the extra Bush tax cuts for the top 2 percent, or will you use us as a human shield to defend wasteful tax breaks for Wall Street hedge fund managers, corporate lawyers, and high-powered lobbyists? It’s time to show which side you’re on.
Jim Houser and his wife Liz Dally own Hawthorne Auto Clinic in Portland, Oregon. He serves on the executive committee of the Main Street Alliance, a network of 10,000 local, independent small business owners across the country and is a contributor to the American Forum.