People continue to struggle with pain at the pump, panic in the grocery aisles, and the erosion of their wages. Buying a home is becoming out of reach for many families. Many are struggling just to pay their monthly energy bills.
With the economy reeling from stagnant inflation, falling wages and the growing prospect of recession, the government’s top priority is to ease the financial burden many are facing. Instead, Democrats are trying to raise taxes, kill jobs, suppress wages, and impose price controls.
One of the job-killing tax increases being considered is an expanded net investment income tax on so-called “pass-through businesses” — or businesses whose income is taxed on the owner’s individual tax return. The NIIT is primarily taxed at 3.8% on passive income, but Democrats have proposed expanding the tax to include active pass-through income (or what’s left over after a business pays off). This proposal is essentially a small business surcharge and penalizes small business owners.
Democrats want to pass this business tax surcharge on top of the federal income tax that business owners already pay. Currently, business owners must pay up to a 37% share of the business’s net income – even if they decide to invest all of that income back into their business and take nothing for themselves. An expanded NIIT means business owners could face a marginal tax rate of up to 40.8% – and that’s before state income tax is taken into account. Forty-three states have an individual income tax, with an average top marginal rate of 6.4%, which means that when all is said and done, business owners could be hit with a total marginal tax rate of 47.2%, even more for some debt.
This small business surcharge rewards hard work, investment, growth and successful small and medium-sized businesses by spending half (or more) of what the owner makes. It’s a success tax that penalizes small businesses for achieving even modest levels of success. Hitting these businesses with massive new tax increases, which the nonpartisan Joint Committee estimates total $252 billion in taxes, would hurt the very people Democrats claim to champion: workers and entrepreneurs.
Also, the marriage tax, which penalizes married couples, is harder for business owners than for unmarried business owners who contribute each income.
Additionally, higher taxes on producers affect everyone: workers and consumers, business owners and non-business owners. If the Democrats have their way, businesses will have no choice but to raise their prices. That’s bad news for an economy already facing recession.
Why do we need to help small businesses and workers compete, stay successful, and get out of our current economic downturn? This strategy of crippling tax and excess spending defies logic.
There are over 32 million small businesses in the United States. Together they support more than 61,000,000 jobs. They are critical to rebuilding and strengthening our economy. Yet with labor shortages, rising inflation, and crushing new regulations and supply chain disruptions, many small businesses are struggling to stay afloat. Indeed, the National Federation of Free Trade Associations found that small business optimism is at an all-time low, and expectations for improvement this year have worsened every month.
Democrats’ Small Business Surcharge Buries Main Street. It is not in the best interest of business owners, American families or the economy.
With consumer inflation at 9.1% and wholesale inflation at 11.3%, it’s clear we need to put the brakes on the Democrats’ irresponsible spending and proposed tax hikes. If not, we risk heading in the wrong direction with worsening inflation and recession.
Mike Crapo is the U.S. Senator from Idaho and a member of the Senate Finance Committee. He is also a member and former chairman of the Senate Banking Committee, a senior member of the Senate Budget Committee, and a member of the Senate Joint Committee on Taxation.
