People are hurting at the pump, the shock in the grocery aisles, and the continued erosion of their paychecks. Buying a house is becoming more and more out of reach for many families. Many are struggling just to pay their monthly energy bills.
As the economy continues to be held back by high inflation, shrinking real wages and the growing likelihood of recession, the government’s priority should be to help ease the financial burden facing many. Instead, Democrats are trying to raise taxes, kill jobs, stifle wages, and impose price controls.
One of the job-killing tax increases being looked at 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 a 3.8% tax that mainly taxes passive income, but Democrats have proposed expanding the tax to include active carryover income (or what’s left over after business expenses are paid). The proposal is essentially a small business premium and would penalize those job creators who can least afford it.
Democrats want to pay this business tax surcharge on top of the federal income tax that business owners already owe. Currently, business owners must pay up to 37% of their share of the company’s net profits – even if they choose to reinvest all of that income back into their business and take nothing out. The extended NIIT would mean 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 individual income taxes with an average top marginal rate of 6.4%, meaning that when all is said and done, pass-through business owners could face a combined marginal tax rate of 47.2%, some owed. even more.
This small business premium penalizes hard work, investment, growth and successful small and medium-sized businesses by taking away almost half (or more) of what an owner earns. This is a success tax that would penalize small businesses for even modest success. Hitting these companies with a massive new tax hike, which the nonpartisan Joint Committee on Taxation estimates would be $252 billion, will hurt the very people Democrats claim to be fighting: workers and businesses.
It’s also a marriage tax that would penalize marriage by treating business owners with joint filing spouses who both file returns more harshly than those who are not married.
In addition, higher taxes on producers affect everyone: workers and consumers, business owners and non-business owners alike. If the Democrats have their way, companies will have no choice but to raise prices. This is bad news for an economy already facing recession.
Why should we make it harder for small businesses and workers to compete, stay successful, and help get us out of our current economic slump? This crippling tax and overspend strategy defies logic.
There are over 32 million small businesses in the United States. Together, they support more than 61,000,000 jobs. They are integral parts of building and strengthening our economy. But 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 Independent Business found that small business optimism is at a historic low, and expectations for better conditions have worsened each month this year.
The Democrats’ small business surcharge would further bury Main Street. This is not in the best interest of business owners, American families or the economy.
With consumer price inflation at 9.1% and wholesale price inflation at 11.3%, it is clear that we must permanently put the brakes on the Democrats’ irresponsible spending and proposed tax increases. Otherwise, we risk accelerating in the wrong direction with skyrocketing inflation and recession.
Mike Crapo is a US 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 Taxation Committee.
