Raising taxes on the rich is bad for everybody

December 01, 2010

Allowing the Bush tax cuts to expire for families earning more than $250,000 per year seems reasonable until one digs further into the economic facts.

IRS income tax statistics show that the top 3 percent of earners pay more of the total income tax bill today than ever. In 2008, they paid 51.5 percent of all income taxes, though they earned just 28.8 percent of the income. In 2001, by comparison, they paid 46.2 percent of all income taxes, and earned 26.1 percent of income.

Under President Obama's plan, top tax rates on the highest incomes will rise to 39.6 percent from about 35 percent now. And that doesn't count the jump in capital gains tax rates to 20 percent from 15 percent.

What many Americans don't know is "the rich" are in fact the most likely to start or fund a new business or to expand a small enterprise. Economist Alan Viand of the American Enterprise Institute recently noted: "Households with incomes above $200,000 received 47 percent of the taxable interest income, 60 percent of the dividends, and a staggering 84 percent of the net capital gains reported on tax returns."

In other words, these people are investors and entrepreneurs.

This is key, since small businesses and start ups account for the bulk of all new jobs, 80 percent by some estimates. And why letting taxes rise on higher earners is a bad idea for all.

The National Federation of Independent Business data show that 75 percent of all small businesses are so-called "pass-through entities," i.e. partnerships, sole proprietors, S corporations and other set-ups. A lot of those small-business profits are declared on personal income tax returns by wealthy taxpayers.

How much? In 2011, Congress' Joint Committee on Taxation estimates taxpayers subject to the higher rates will earn 50 percent of all small-business income.

So this isn't just about giving "rich" people a tax cut; it's about jobs and small businesses at a time when America needs both.

Benedict Frederick Jr., Pasadena

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