Between bouts of doubt of the sanity of my fellow citizens and their faith in rationality I get some folks who are more focused and patient than me finding out exactly what it is I want to know. I kept forgetting the name of The Tax Foundation. I should not again. I've used them once before, and I do once again.
Here's their press release:
Study Shows That Higher Tax Rates Discourage Growth and Expansion of Small Businesses
Washington, DC, October 27, 2008 - Restoring the higher, Clinton-era tax rates on the top two brackets, as Senator Obama and some Congressional leaders have proposed, increasing the 33 and 35 percent rates to 36 and 39.6 percent, respectively, would raise taxes on 45 to 55 percent of small business income, according to a new Tax Foundation study.
In Tax Foundation Fiscal Fact No. 152, "The Effect of the Presidential Candidates' Tax Plans on Flow-Through Businesses," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., explains that because most small businesses are not required to pay the corporate income tax, small business income instead "flows through" to the owners who report it on their individual income tax returns. Carroll explains that with 35 percent of business taxes paid in this manner by the owners of "flow-through" businesses—sole proprietorships, farm proprietorships, partnerships and S corporations—it is important to analyze how tax increases affect the entrepreneurial sector.
"Small businesses are an important source of innovation and risk-taking, creating between 60 and 80 percent of net new jobs, employing over half the labor force, and generating more than one half of the nation's gross domestic product," says Carroll. "High income tax rates reduce the investment spending of entrepreneurs and the likelihood that they invest at all, discouraging the growth or expansion of small businesses."
About 1.3 million tax returns will pat an extra $30.1 billion under Obama's plan to raise the top two tax rates. Carroll uses various definitions of "small business" to calculate the percentage of this tax increase that falls on business income. In the most inclusive definition, nearly 80 percent of taxpayers affected by the top two tax rates report at least some income or loss from a flow-through entity. Using this definition, 51 percent of small business income would see a tax increase totaling $15.4 billion. In another definition, where 65 percent of taxpayers in the top two brackets report positive business income, 55 percent of small business income would see a tax increase totaling $16.4 billion.
"Under these alternative definitions, the fraction of taxpayers in the top two brackets with business income varies from 36 percent to 77 percent," Carroll explains. "However, roughly one-half of the $30.1 billion in higher taxes could be attributed to the business income regardless of the definition.
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