Looking out for small businesses

Democrats want to boost the economy with an extension of the payroll tax break, benefiting over 100 million American households. Fine, Republicans said, but Dems will have to pay for it. Fine, Democrats replied, proposing a modest surtax on millionaires and billionaires, ensuring that the tax cut wouldn’t add a dime to the deficit.

The GOP still isn’t happy. To hear House Speaker John Boehner’s (R-Ohio) put it, the surtax is impermissible because it would be a “job-killing tax hike on small businesses.”

This is a popular Republican argument. As Suzy Khimm explained, it’s also terribly misleading.

The millionaire’s tax would indeed affect about 30 to 40 percent of business income that’s reported on individual tax returns, rather than on corporate tax returns. But that income is concentrated among a very small group of small businesses. The tax would only affect about 1 percent of those the Treasury Department classifies as “small business owners.”

Just 2 percent of all business owners who file taxes through individual returns — including sole proprietorships, limited liability corporations, S corporations, and partnerships — have taxable income that’s more than $1 million, according to an August 2011 Treasury report. And just about 1 percent of those Treasury categorizes as “small businesses owners” would be affected by the Democrats’ proposed millionaire’s tax — about 273,000 in total. That number drops even further — to 51,000 — if you define “small business owners” as those earning at least 25 percent of income through their firm.

Jonathan Cohn had a good item last night, taking this a step further.

The purpose of this particular millionaire tax is to offset the cost of extending the payroll tax break set to expire at the end of this year. That tax break doesn’t simply help employees. It helps employers too.

Chuck Marr of the Center on Budget and Policy Priorities explains: “The bill’s payroll tax cut would not only boost workers’ paychecks by hundreds of dollars or more in 2012 but also cut the taxes of every small business. Employers would receive a tax holiday on fully half of their 2012 Social Security taxes on the first $5 million in payroll. If employers create jobs, they would pay no Social Security taxes on the first $50 million in increased taxable payroll.”

It adds a touch of irony to the GOP talking points. Republicans are willing to kill a Democratic proposal that would cut taxes on small businesses, ostensibly because the GOP opposes tax increases on small businesses.