The Small Business Store-Front

As observers try to sort out various “compromise” scenarios for both sides in the ongoing fiscal talks, there’s one kind of obvious Republican “fallback” position that probably strikes fear into the hearts of many GOPers: creating a “small business” exemption, or “carve-out,” from higher tax rates.

It’s scary because small businesses have long been the store-front behind which Republicans have protected their intense commitment to lower tax rates for the very wealthiest Americans. Since some small businesses pay taxes as individuals, the “top rate” affects their job-creatin’ mojo immensely, so let’s leave the top rate alone, even if that happens to create a windfall for the richest people on the planet. It’s just a price we all have to pay for the job-creatin’, right?

But now at least one Republican Senator, Susan Collins of Maine, is talking about finding a way to separate very rich individuals from small businesses, either by exempting the latter or imposing a “surtax” on the former, or both, per this report from Politico‘s Rachel Bade:

The Maine Republican introduced legislation to extend the payroll cut and several other expiring provisions, and offset it with a 2 percent surtax on millionaires. The surtax included an exemption of sorts for businesses that had less than 500 employees.

This approach is also attractive to some Democrats who want to seem sympathetic to small businesses or “family farms.” And presumably, such a scheme could be structured in a way that can be sold as an emergency deficit-reduction measure rather than as a permanent increase in tax rates.

It’s not as though Collins’ proposal is taking off among Republicans, and even Bade’s bullish article about it discusses it as a “Plan B” if GOPers can’t figure out how to avoid rate increases on anybody. But it certainly represents a challenge to pols who have pretended there is unfortunately just not any way to separate the tax treatment of Daddy Warbucks and that nice immigrant family that owns the corner convenience store.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.