The politically charged debate over high-income tax cuts is reaching a fever pitch, and the question being asked across the nation is whether small businesses’ hiring ability will suffer if these cuts expire at the end of the year. Recently released scientific opinion polling shows what real small business owners think, and it might surprise you. The majority of small employers in the poll—more of whom identify as Republican than Democrat, an important distinction given the partisan nature of this debate—believe raising taxes on the wealthiest 2 percent is the right thing to do in light of our budget crisis.
The truth of the matter is that small business owners are far more concerned about improving economic conditions for the middle class—a category virtually all their customers fall into and which 97 percent of them are part of, too. According to an independent telephone poll Small Business Majority released on Oct. 25, 86 percent of small business owners oppose increasing tax rates for household income below $250,000, and seven in 10 strongly oppose it. What’s more, a 52 percent majority supports letting tax cuts on household income above $250,000 expire.
These entrepreneurs recognize the important role middle class Americans play in the overall success of our economy. If they see an increase in their tax rates, as is scheduled to occur at the end of this year, middle class customers will have less disposable income. Less money in their pockets means less demand for small businesses’ goods and services, and that’s something that could affect small business hiring decisions.
As someone who has been in the top income brackets before and who probably will be again this year, Anne Zimmerman, owner of Zimmerman and Company CPAs in Cincinnati, Ohio, should understand the situation better than most. “I can tell you with certainty that being in the top tax brackets has nothing to do with my hiring decisions,” Anne said. “There’s no way I’d let a couple percentage points being added to my personal tax rate get in the way of business decisions. I make those decisions by considering demand for our services, plain and simple.”
That ties into another widely-used, albeit misguided, small business argument for extending the high-income tax cuts: since a large number of small business owners, Anne included, file their taxes as individuals, their businesses would be extra-sensitive to an increase in the top individual income rates. While 54 percent of small business owners we surveyed do in fact have their business revenue passed through to their personal taxes, only 5 percent reported household income exceeding $250,000.
And for the sliver of owners who do earn more than $250,000? Only income above that threshold will be impacted by the rate increase, a little known but important fact. Earnings below that amount will continue to be taxed at the lower rate. So how many small business owners are making the really big bucks—say, over $1 million? We released polling in February that found out of 500 randomly selected small business owners across the nation, only one had income in that range.
These statistics are vital to cutting through the rhetoric surrounding this issue. We wish more small businesses did fall into those top brackets, but that’s just not the case. And seeing entrepreneurs used as pawns in policy battles that don’t impact them is “incredibly aggravating,” as Anne Zimmerman puts it. “Let them expire!” she said. “It’s the middle class that drives demand for my business and it’s middle class people who run most small businesses. Those are the job creators who can drive our economic recovery and who need a tax cut.”
Arensmeyer is the Founder & CEO of Small Business Majority.
American Forum. 11/12.