Pushing High-Income Tax Cut Under Small Business Guise: Not Good Fiscal Policy

John Arensmeyer

As the year progresses, small business owners are becoming increasingly iconic in Washington. In the latest round of legislative battles over whether to eliminate tax breaks for high-income earners, the small business voice is unscrupulously being leveraged to push a partisan agenda — an agenda that assumes small business owners are high-income earners. But there’s a problem. For the most part, they’re not. And the real voices of small business owners are fighting to be heard.

The argument for extending the tax cuts for earners with income exceeding $250,000 annually for the sake of small business survival is erroneous and misguided. The vast majority of small business owners simply don’t make that much money. According to the nonpartisan Tax Policy Center, less than 2 percent of small businesses are in the top two income brackets — individuals earning more than about $170,000 a year and families earning more than about $210,000 a year. We wish these hardworking entrepreneurs were rolling in $250,000 a year, but they aren’t.

That said, it’s not surprising they actually support ending the upper income tax cuts. Small Business Majority’s national opinion polling recently found small business owners broadly agree they’re at a disadvantage when it comes to taxes. The majority of them would like to see tax cuts for those with annual household income exceeding $250,000 eliminated.

In reality, many of the owners who would be affected by ending these cuts are wealthy individuals who have created partnerships or S corporations to lower their tax obligations. They may not even be small businesses, but just appear that way on paper to the IRS. These are not your average mom-and-pop shops.

On the other hand, most small businesses benefit from the middle class tax cuts also set to expire at year’s end. Senators voted to extend these cuts last week when they approved the Middle Class Tax Cut Act, and the House is expected to vote on the bill Wednesday. If we want to keep afloat an important life raft small businesses depend on, the House of Representatives should pass it. Main Street entrepreneurs need it to continue saving money and growing their businesses.

When real small-business owners sit down to pay their bills and plan for the future, they worry about boosting sales, meeting payroll, affording health insurance, reducing their energy costs and the pending loan application at the bank. Our focus should be on helping them take advantage of provisions in the Affordable Care Act or increasing their access to capital, which will do far more to help them create jobs and grow our economy than ill-advised tax breaks for the super rich.

While the House of Representatives has the chance to stimulate small business growth by keeping the middle class tax cuts in place, it needs to take it. If it doesn’t, small business owners and their potential customers will only be left with more fiscal uncertainty. Middle class Americans make up a huge customer base for Main Street firms. Putting more disposable income in their hands will help pump money into small business coffers.

Our polling has found time and time again that low customer confidence is either the biggest or one of the biggest problems facing small business owners. Increased consumer demand for small business owners’ goods and services would mean more cash in small business owners’ pockets — and that could be spent on expanding and hiring new workers.

For the sake of the economy, the House should approve the legislation passed by senators last week. Entrepreneurs need it. What they don’t need is to see their hopes for the future dashed in favor of keeping the rich, rich, and they especially don’t need lawmakers shamelessly channeling their political influence to make that happen.