How Many Small Businesses Would Be Hit By New Taxes On The Rich?

Oct 3, 2011

One key Republican criticism of President Obama's proposal to raise taxes on the wealthy is that it would harm small businesses whose owners who make over $250,000 in taxable income. Rep. Paul Ryan put it this way last week in an interview with NPR's Michele Norris:

RYAN: And the problem we have with this is since the majority of jobs come from successful small businesses who most of whom file as these individuals, we have to be mindful of the fact that if we tax our job creators in our small businesses a lot more than our foreign competitors tax theirs, they will win, and we will lose. And we are taxing our corporations, our small businesses at higher tax rates than our competitors are taxing theirs, with some exceptions.

But how many small businesses actually fall into that category? Dante Chinni over at Patchwork Nation has a new analysis of the numbers:

There are about six million small businesses in the United States, says Al Lee, director of Quantitative Analysis at the firm Payscale, and half of them have four or fewer employees. In fact, three-quarters of those small business, he says, have fewer than 14 employees.

And is $250,000 a reasonable amount of money to expect those people to make? "In their dreams maybe," Lee says and he is in a good position to know. Payscale, researches and tracks employee compensation data and has the world's largest database of individual employee compensation profiles.

"About 10 percent said they made less than $25,000 and about 10 percent said they made more than $175,000," Lee says. "For a lot of small businesses it is a struggle to make anything – they have cash-flow issues."

But what about those wealthy small business owners out there? Are these people less likely to create jobs with a personal tax hike? Probably not, Lee says, because when business owners run firms that make that kind of money they are rarely running the business through their own bank account using their own income tax returns to pay that bill.

Lee points out that larger businesses — those with 20 employees or more — tend to be incorporated and wouldn't be subject to individual tax rates anyway.

Chinni's post also includes a cool interactive map showing just where the "rich" live. Hint: look in what he calls the "industrial metropolis" and "monied 'burbs" counties that surround major cities.

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