According to figures compiled by the Small Business Administration, there are fewer than six million small businesses that actually have payrolls. The rest are so-called nonemployer firms that report income from hobbies or freelance work done by their registered owners, earning as little as $1,000 a year.
Of these, according to a calculation by the independent, non-partisan Tax Policy Center, fewer than 700,000 taxpayers would have to pay higher taxes under Mr. Obama’s plan. But even some of these are not small-business owners in the traditional sense; they include lawyers, accountants and investors in real estate, all of them with incomes that put them in the top tax
So are there “millions more like Joe the Plumber,” as Mr. McCain contended? Probably not. Mr. Obama may well have been correct when he stated that “98 percent of small businesses make less than $250,000.”
The New York Times takes the standard nothing to see here approach to the impending massive tax hike that will occur to many small businesses. Most of the media is asking the wrong question. The important question, to me at least, is not how many small businesses will be affected but which ones they will be. The answer to the second question is the largest and most successful. If you punish the largest and most successful then that punishment filters down. Furthermore, the largest and most successful also account for the majority of the wealth and jobs created by small businesses.
Let's look at the issue from another way. We can all agree that successful small business with 100 employees will be affected by Senator Obama's tax increase. The owner of this company will not only see their income taxes go up by about 6%, but they will also see a new payroll tax on all of their income above $250,000. If this small business owner makes one million dollars yearly, that might mean new taxes in excessive of one hundred thousand Dollars. Here is what Barack Obama isn't telling everyone. Small business owners want to be larger small business owners. Larger small business owners want to be big business owners. The way they get there is by investing everything they can back into their small business. That means that this small business will have about one hundred thousand Dollars LESS in investment back into the business each and every year going forward.
So, you say that's no problem because this small business is the exception and not the rule. That maybe be so, but it takes 20 small businesses employing five people to equal the number of people that this business employs. That means even if this sort of a business the exception, their sheer size relative to others means their affect on the overall marketplace is exponentially greater than the bulk of the small businesses that won't face a tax increase.
The main flaw is that our system is interconnected. Barack Obama seems to think that you can punish the really successful without that punishment spreading beyond those directly affected. That's simply not the case. The small businesses that will face this massive new tax increase all have employees, customers, and suppliers. If a small business owner suddenly has to pay a hundred grand more in taxes, that's less money to hire people, for new supplies, and ultimately they will have to raise their own prices to make up for the last money. A small business with a handful of employees may not be directly affected by Obama's tax increases. Many of these small businesses have lucrative contracts with larger businesses that are, and once those small business owners get done paying more in taxes they may not have enough left to continue those contracts. It's the small wholesale meat company that counts on the far more successful restaurant for its main contract. If the restaurant has to pay more in taxes, that leaves less money to buy meat from the small wholesale meat company.
What Obama's tax proposal will do is to punish the most successful small businesses. Nearly each and every new Dollar that those business owners pay in taxes is a Dollar less that they couldn't invest back into their own business. That lost investment won't occur in a vacuum. That lost investment will affect their employees, their suppliers, and their contractors. Ultimately, a tax increase on the most successful small businesses is like a cancer through the whole business community. That's the fatal flaw of Obama's tax proposal.