As Congress prepares to take up legislation to boost small business job creation in the following weeks, some lawmakers argue that the legislation must extend parts of the Bush tax cuts that benefit the very rich.
Two ideas along these lines are being discussed. One is to extend income tax reductions for the very rich, at least for taxpayers who can be somehow classified as “small business” taxpayers. The second is to eliminate most of the federal tax on the estates of millionaires. As the new CTJ report explains, both of these proposals would allow the rich to continue to enjoy most of the tax cuts they received under President Bush while doing nothing to create or protect jobs.
Extending income tax cuts for small business owners is unlikely to boost job creation because:
— President Obama has already pledged to extend the Bush income tax cuts for 98 percent of taxpayers. Only 3 to 5 percent of small business owners are wealthy enough to lose some of their tax cuts under President Obama’s proposal.
— Hiring decisions are generally not based on federal income taxes, but are based on whether or not there is demand for the goods or services that a business provides.
— Economists and analysts, including those at the non-partisan Congressional Budget Office, have concluded that extending income tax cuts would be the least effective of several policy options to create jobs.
— Enacting a “carve-out” or special break for “small businesses” would simply encourage all rich taxpayers to disguise their income as “small business” income.
Cutting the estate tax is also unlikely to boost job creation because:
— An even smaller percentage of small businesses would be affected by the federal estate tax under President Obama’s proposal.
— Those few small businesses affected by the estate tax already enjoy special breaks that make it more manageable for closely held businesses and farms.
— It is very unlikely that the estate tax causes millionaires (the only people affected by it) to work less or invest less and therefore create fewer jobs. If anything, the estate tax could have the opposite effect.
Read the report.