The Real Way to Help Small Business
Lot to Gain by Mom and Pop from Payroll Tax Cut
With only a week to go before Congress adjourns for the holidays, Congress has yet to renew federal unemployment benefits or the payroll tax cut that will expire at year-end. Unfortunately, Republican leaders seem far more interested in advancing their partisan aims than helping millions of struggling American families.
The House leadership weighed in on Thursday with a particularly bad proposal. It would extend the current payroll tax cut but gradually reduce the duration of unemployment benefits. And it proposes to pay for both with changes to social spending programs and by freezing pay for federal workers. The bill is also larded up with deplorable amendments, including one that would weaken clean air rules and another that would rush ahead with a potentially dangerous oil sands pipeline from Canada.
In the Senate, the debate has focused on how to pay for a renewal of the payroll tax cut. Democrats want a surtax on incomes over $1 million a year. Republican leaders, wrapping themselves in a populist mantle, claim the surcharge would hurt small businesses and the economy since small businesses are “job creators.”
Research shows that a mere 1 percent of small business owners make more than $1 million per year. Only about 5.4 million of the nation’s 20 million small businesses pay any wages at all. The Republican claim about wealthy small business job creators, it turns out, is based on a convenient and overly broad definition of “small” that includes partnerships and S-corporations, like hedge funds, accounting firms, law practices and other often big businesses.
So, when they claim to be protecting small business from high-end taxes, Republicans are really talking about protecting big companies whose owners fall into the one-half of 1 percent of taxpayers who are millionaires or better. A surtax would certainly not hurt them.
The latest Democratic bill to cut the payroll tax, blocked by Republicans on Thursday, called for a 1.9 percent surtax on income over $1 million. More important, for any savvy business owner, a surtax would have no bearing on hiring decisions. If new workers are profitable before tax, they will be profitable after tax, even if the employer has to pay slightly more of the profit in taxes.
Back in the real world of small businesses--start-ups, corner stores, Main Street, small companies in large supply chains--a surtax on high earners that pays for a payroll tax cut would be helpful because that tax cut would put more spending money in customers’ pockets.
Senate Republicans have now blocked two Democratic versions of the payroll tax cut/millionaires’ surtax. A new proposal by U.S. Sens. Claire McCaskill (Dem., Mo.) and Susan Collins (Rep., Maine) would extend the payroll tax cut and impose a millionaires surtax, but include an exemption for some small businesses.
The proposal is supposed to get Republicans on board. But implying that any small business exemption is needed only amplifies the false claim that small businesses are harmed by taxes on the rich. Unless very narrowly tailored, any small business exemption could all too easily become another loophole for the wealthy.
Congress should pass clean extensions of both unemployment benefits and the payroll tax cut. Based on the facts, as opposed to the rhetoric, a millionaires’ surtax is a reasonable way to offset some of the cost.