[Congressional Record (Bound Edition), Volume 158 (2012), Part 12]
[Senate]
[Pages 16729-16730]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   PROPOSED SMALL BUSINESS TAX HIKES

  Mr. HATCH. Mr. President, one thing people admire about firefighters 
is that when others are running away from a burning building, they run 
toward it. Conversely, while most people prudently avoid cliffs, 
President Obama and the congressional Democratic leadership are racing 
to go over the fiscal cliff ``Thelma and Louise'' style.
  Absent action by Congress and leadership by the President, at the end 
of

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the year almost every Federal income tax payer in America will see an 
increase in their rates. Some will see a rate increase of 9 percent, 
while others will see a rate increase of 87 percent.
  Although not often discussed--and although the President likes to 
avoid discussing it--the impact of these rate hikes will have a 
uniquely damaging impact on small businesses and the jobs they provide. 
Small businesses are the engine of job creation in our economy, and the 
rate hikes the President insists on will hit them hard, undermining 
economic growth and hampering innovation and job creation. Whether we 
go over the fiscal cliff or whether the President gets his way on 
raising rates, taxes will go up significantly on small businesses.
  The President would like us to think that raising these taxes is no 
big deal; it will just hit people who already have a lot of money and 
who can ``afford to give a little more.'' As President Obama put it in 
using his own finances as an example, absent tax increases, ``I'm able 
to keep hundreds of thousands of dollars in additional income that I 
don't need . . . ''
  With due respect, this is an amazingly naive understanding of tax 
rates and their impact on economic growth. It assumes that all the 
people hit by these higher tax rates are wealthy wage earners, CEOs, 
and financiers. It completely negates the impact on small business 
income that will be subject to these individual rate hikes.
  Here we are at Christmastime and the Democrats want Santa to put coal 
in the socks of all the small businesspeople. Even President Obama 
acknowledges that two-thirds of the new jobs in our economy are created 
by small businesses. The vast majority of small businesses are 
organized as what we call flowthrough business entities, such as 
partnerships, S corporations, limited liability companies, and sole 
proprietorships. In other words, these small businesses pay the 
individual income tax rates.
  Because the vast majority of small businesses are flowthrough 
business entities, the income from these businesses flows through the 
business directly onto the small business owners' individual tax 
returns. Therefore, any increase in individuals' tax rates means those 
small businesses get hit with a tax increase. This tax increase lands 
on those small business owners even if they do not take one penny out 
of their business's profits and they put it all back in to be able to 
hire more people or to get more inventory or whatever that helps their 
business along. Even if a small business reinvests all its income to 
hire more workers, pay the workers they already have, or purchase 
equipment, they will still get hit with this looming tax hike.
  The President and those in his party who support these rate hikes owe 
it to the American people to explain why their proposal will not 
adversely impact small businesses and those who depend on them for 
their livelihoods because the data suggests the impact will be severe. 
There is no question about that. Why can't we get the real facts here?
  First, according to the Congressional Budget Office, 80 percent of 
the revenue loss from extending the 2001 and 2003 tax relief provisions 
is found among those making less than $200,000 per year if single and 
$250,000 if married--the President's threshold.
  Second, the nonpartisan official scorekeeper for Congress on tax 
issues, the Joint Committee on Taxation, tells us that 53 percent of 
all flowthrough business income would be subject to the President's 
proposed tax hikes. This is our Joint Committee on Taxation, which is a 
nonpartisan committee: 53 percent of all flowthrough business income is 
subject to tax hikes on the top two rates.
  Given the agreed-upon importance of small businesses to our economic 
recovery, it is a mystery to me why the President and his Democratic 
allies would pursue tax increases on these job creators. We simply 
cannot afford to raise taxes on over half of all this small business 
income.
  President Obama and congressional Democrats defend their plan by 
claiming that only 3 percent of small businesses would get hit with 
this tax increase, so we should not fear raising taxes on them. 
However, they are misreading the Joint Committee on Taxation's letter 
on this issue. That letter only talks about the percentage of taxpayers 
affected, not the percentage of businesses affected.
  For instance, if 10 people own one business, President Obama and 
congressional Democrats count that one business as 10 businesses when 
they make their statement about a small percentage of businesses 
affected. Obviously, that is not the right way to look at this. The 
truth is, they don't know what percentage of businesses they are 
proposing to raise taxes on and, what is worse, they don't seem to 
care.
  The IRS publishes its Statistics of Income Data on its Web site 
providing the most recent available tax data, which is currently tax 
year 2010. According to that official IRS data, when looking at the 
entire United States, 21 percent of owners of S corporations and 
partnerships, including limited liability companies, make $200,000 or 
more.
  Since President Obama's proposed rate hikes occur on singles making 
$200,000 or more and married couples making $250,000 or more, the vast 
majority of this 21 percent would get hit with a tax increase. The only 
portion of this 21 percent of S corporation and partnership owners who 
would not be hit with a tax hike are those who are married and make 
between $200,000 and $250,000.
  According to a 2011 Ernst & Young study entitled ``The Flow-Through 
Business Sector and Tax Reform,'' citing 2007 data from the U.S. Census 
Bureau, over 44 million workers employed by S corporations and 
partnerships, including limited liability companies--over 60 percent of 
the 69 million employees who work for flowthrough businesses--are going 
to get hurt. So almost 21 percent of S corporations and partnership 
owners will be subject to the tax hikes on the top two rates, and over 
64 percent of the workers in flowthrough businesses are found in these 
types of businesses. This is before we even consider the impact on 
owners of sole proprietorships, which employ the remaining 36 percent 
of employees in the flowthrough sector.
  When the Federal Government takes an additional 5 percent of the 
money that these small businesses earn, the effects are clear. Far from 
this being--as the President suggests--money business owners don't 
need, it will, in fact, lead to lost jobs, stagnant or reduced wages, 
and a decrease in investment.
  The President campaigned on raising the top rates, and he seems bent 
on doing so. But he owes it to the American families to come clean 
about the impact these hikes will have on the economy and on jobs. He 
should come clean and admit his desire for redistribution trumps all 
other considerations.
  The debate over the fiscal cliff has been quite discouraging for me. 
The President knows why it is that Republicans support full extension 
of current tax policy, and it is not because we are trying to defend 
the so-called rich. It is because we have a genuine and empirically 
grounded concern about the impact of marginal rate hikes on small 
businesses, the jobs they create, and the men, women, and families who 
depend on them. I couldn't care less about the truly rich.
  Instead of acknowledging that marginal rate hikes would have an 
outsized impact on small businesses, the President has decided instead 
to demagog this issue, paint Republicans as out of touch, and put 
political points ahead of jobs. It is well past time for a grownup 
conversation about tax policy. Our door remains open, and we look 
forward to having the President walk through it.

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