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RBC I The politically charged debate over high-income tax cuts is reaching a fever pitch, and the question being asked in Colorado and 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 commissioned by Small Business Majority, 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 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, Colorado’s middle class customers will have less disposable income. Less money in their pockets means less demand for small businesses’ goods and services here, and that’s something that could affect small business hiring decisions.
As a longtime entrepreneur, Nora Hill, owner of Kilwin Chocolates in Fort Collins, can attest to the fact that high-income tax cuts simply don’t impact small businesses the way some are claiming. “Expiration of those tax cuts certainly wouldn’t affect me in any way,” she said. “I wish I fell into the top brackets, who doesn’t? But I probably never will. And I would be very surprised if any of my fellow downtown retailers—with whom I’m pretty well in touch—would be affected either.”
This ties into another widely-used, but misguided, small business argument for extending the high-income tax cuts: since a large number of small business owners 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 entrepreneurs did fall into those top brackets, but that’s just not the case. And for real small business owners like Nora, seeing entrepreneurs used as pawns in policy battles that don’t impact them is aggravating. “What on earth do the top income brackets have to do with anything?” she challenges. “I think tax cuts for people in that category absolutely should expire. There’s no way we can sustain our economy otherwise. 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 people who need a tax cut.”
Tim Gaudette is the Colorado outreach manager for Small Business Majority.