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1 Scott A. Hodge, New Surtax and Expiring Tax Cuts Could Hit Business Income Simultaneously 1 (2009)

handle is hein.taxfoundation/ffbiaxz0001 and id is 1 raw text is: FOUNTFISC July 2009 No. 180 New Surtax and Expiring Tax Cuts Could Hit Business Income Simultaneously By Scott A. Hodge Business income may be in for a significant tax hike in 2011. The Ways and Means Committee has approved a new 5.4 percent surtax on income over $1 million and two smaller surtaxes on other h-ighincome people. These may become law at the same time as the current top tax rate on wages (35%) reverts to 39.6% (end of 2010). In most nations corporations dominate the business sector, and so these higher wage taxes would not have a dramatic effect on business income. But the U.S. business sector includes millions of so-called non-corporate businesses organized as limited liability partnerships (LLPs), limited liability corporations (LLCs), S-corporations, and other forms. These American businesses pay their taxes on the individual tax returns of the owners. One argument, then, against raising personal income tax rates is that businesses will suffer. The IRS is careful not to publish so much detail about the nation's individual tax returns that personal privacy could be breached, and this is especially true of high-income tax returns. Therefore, it is impossible to determine precisely whether a tax return with business income is actually a struggling or emerging business. However, to the extent we can analyze personal income tax returns to clarify the danger of high rates to business income, we do so here. Many seemingly contradictory statistics are cited on this issue, depending on the author's opinion of higher tax rates. If an author favors higher tax rates, he is likely to cite a statistic similar to this: only 4.80% of all tax returns with business income will face a tax increase. That's true because so many momn-and-pop businesses do not earn enough to pay the coming tax rates on high income.

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