Republicans and Democrats have been spending time arguing about just how much of a blow to small businesses it will be if we allow the Bush tax cuts for the wealthy to expire, while keeping the cuts for everyone earning less than $250,000. The answer is that a) the overwhelming majority of people with small-business income -- 98 percent, as a matter of fact -- are not in those top two brackets that will see their rates go back to Clinton-era levels if the Obama plan passes; and b) a lot of those who would see their rates go up are not mom-and-pop store owners, but people like lawyers and hedge-fund managers, and even some corporate behemoths like Bechtel and PriceWaterhouseCoopers that happen to file their taxes that way. But there's something else that hasn't been discussed much.
Republicans would like people to think that if we let those top rates reverse, then Mom and Pop will have to lay off the guy who works the register at the dry cleaner. But the tax rates we're talking about aren't on the business' revenue, they're on the individual's income. In the case of Mom and Pop, the tax rates are on what they take home -- their profits -- after they've paid all their expenses, including their employees. If Mom and Pop took home $500,000 last year, they could have used that money to hire more people, but they decided to take it in profits. That's completely fine -- it's their business. But they still brought home $500,000.
We have this idea that if you can call yourself a "small business" then not only are you bathed in virtue but the choices we make about how to tax you should somehow be different than they are for other people at the same level of income. But if you're a "small business" and you take home half a million bucks a year, then guess what: you're rich! And you ought to be taxed just like other rich people.
-- Paul Waldman
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