November 26, 2012
Mary Black stated in her letter published Nov 8. that raising personal income tax rates “at the top” would affect very few small businesses that pay taxes on business income as personal income. While that is technically true, it misses the point about the effect of higher tax rates on job creation.
According to the latest published (2008) IRS data on Subchapter “S” corporations, only about 300,000 out of 4 million “S” corporations would average enough taxable income to be affected by increasing the top two tax rates. But that small number of “S” corporations pays 70 percent of all wages and salaries.
The averaged wage and salary expense for the 2.9 million “S” corporations with gross incomes of $500,000 or less was $15,000 a year — equal to one and a half minimum-wage workers per business. The averaged payroll expense for the 300,000 businesses that would have been affected by higher taxes was $1.3 million per business, or 35 employees per business at average 2008 earnings (or 140 minimum wage workers).
Her miscalculations don’t stop there. She further states “End the Bush tax cuts for the richest 2 percent and reinvest the $1 trillion in savings.” That would be a neat trick, since the most the federal personal income tax has ever collected (2007) from all taxpayers is $1.1 trillion.
The total collected from the top two brackets for incomes over $200.000 was $325 billion. Had the $686 billion of taxable income at the top tax bracket been taxed at the pre-Bush tax rate of 39.6 percent instead of 35 percent, it could have yielded an additional $31.6 billion. And had the $258 billion of taxable income from the next-highest tax bracket been taxed at 36 percemt instead of 33 percent, it would have yielded an additional $7.8 billion, for an additional total of $39.4 billion. That is about 96 percent short of her trillion-dollar “savings.”
On the other hand, if the pre-Bush tax rates were applied to 2007 taxable income for all tax filers with incomes below $200,000, it could have generated an additional $138 billion, which is over three and half times the amount of “tax cuts for the rich.” So from the standpoint of lessening the impact on job creation and raising more revenue, perhaps it makes sense to have the middle class start paying their fair share again. That is what we were doing under Clinton.