According to the Wall Street Journal, small businesses have felt the brunt of the current recession as they have suffered the largest proportion of job losses. “Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter,” according to the Labor Department. Unfortunately, Washington’s tax policy may only exacerbate the economic outlook for small business owners.
The tax cuts of 2001 and 2003 will sunset in January, essentially raising individual tax rates. Current individual tax rates of 33 and 35 percent will increase to 36 and 39.6 percent. However, unbeknownst to many people is a large proportion of small business owners in these tax brackets classify their businesses as S-corporations. Under S-corporation status, profits from the business are funneled into the owner’s individual tax return, meaning the owner’s individual tax rate is applied to business profits. In essence, allowing these tax cuts to expire will result in an increasing tax burden for many small business owners.
“Small business owners in Vermont are having enough trouble battling the recession. A tax increase will only lead to higher unemployment and less economic growth. If we want out of this recession, we need to facilitate the real job creators, American small business owners, in expanding their payrolls. This isn’t going to happen if we raise their taxes,” explains Len Britton.
Small business owners are not the only ones who will suffer from tax increases. It is likely the capital gains tax will increase by 33 percent, from 15 to 20 percent. Seniors living off of capital gains will see their fixed income cut by $1,700 annually, on average.
“What Senator Leahy and other career politicians are failing to realize is letting these tax cuts expire will adversely affect many of the constituents they are supposedly trying to help,” finished Len Britton.