Claims That A Modest Tax Surcharge On Millionaires Would Damage Small Businesses And The Economy Do Not Withstand Scrutiny

Source: Aviva Aron-Dine, Center on Budget and Policy Priorities, May 20, 2008

From the summary:
Supplemental appropriations legislation that the House of Representatives approved last week (H.R. 2642) would impose a modest income tax surcharge on couples with adjusted gross income above $1 million (and singles with AGI above $500,000) to fund an expansion of higher education benefits for veterans. The surcharge would be equal to 0.47 percent of a taxpayer’s income above the threshold. For example, a couple with AGI of $1.1 million would pay a surcharge of $470 ($470 = 0.47% x $100,000).

Critics of the legislation have charged that the surcharge would harm small businesses and thereby damage the economy. In a letter to House members, the National Association of Manufacturers asserted that the surcharge would even diminish the employment prospects of returning veterans. The claim is that, because most small business owners pay individual income tax on their small business income, many of them would pay higher tax on their profits as a result of the legislation, which would deter them from hiring new workers and investing in their businesses. This argument is severely flawed in several respects.

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