Obama’s Tax Hike Plan Punishes Small Businesses

David Park is chairman and cofounder of Job Creators Alliance, a nonpartisan, nonprofit organization based in Dallas focused on developing free market solutions to America’s economic and employment challenges.

This week, President Barack Obama announced a new push to extend tax cuts for individuals who make $250,000 or less a year. These tax cuts were enacted during the Bush administration, and are set to expire at the end of the year. While the White House would like you to believe this is an effort with good intentions to help protect the middle class, it is merely an attempt to distract tax payers from recent bad economic news, this plan will ultimately harm–not help–the middle class.

President Obama claims that his tax policy targets the rich while offering relief for the middle class by placing a $250,000 ceiling on tax cuts. What he doesn’t mention is that many of these so-called “rich” are actually small business owners. In effect, he is proposing to increase taxes on the very people who have been driving U.S. job creation while struggling to survive in a weakened economy.

Small business owners are often unfairly grouped with the extremely affluent because of the way they file their taxes. Due to their size, most small businesses file as sole proprietors or partnerships–in fact, approximately 85 percent of small businesses file income taxes as individuals. This means that, while a small business owner’s personal income may seem large, the majority of the money is actually funneled directly back into the business.

By targeting these individuals, President Obama is not only increasing taxes for nearly half of America’s small businesses, he is also making it harder for the middle class to be able to find the jobs they so desperately need.

This is simply bad policy. Small businesses create 64 percent of new jobs in this country and employ almost half of all American workers. Raising taxes on them won’t create a single job. The president insists that the $250,000 ceiling will only affect the rich, but the Joint Tax Committee estimates that the tax hike will affect over half of all net business income in 2013. And the nonpartisan Tax Policy Center sees an overwhelming 96 percent of middle class taxpayers paying an average of $1,800 a year as a result.

Why would such demonstrably bad policy be pursued at a time when our economy can least afford it? It appears to be nothing more than a political stunt–which, while understandable in an election year, is bad news for working families and small businesses that are looking for a permanent relief.

For some perspective, it’s worth noting that in January of 2010, a prominent politician stated that raising taxes “when the economy remains somewhat fragile” would be “a mistake when the economy has not fully taken off” and that “potentially you’d see a lot of folks losing business, more folks potentially losing jobs.”

That politician was President Obama. He was right then. As the most recent employment report confirms, our economy is still fragile. Raising taxes never bodes well for job creation, but particularly when we are still recovering from the 2008 financial crisis.

This is not a partisan issue. Elected leaders on both sides of the aisle have voiced concerns with raising taxes at this critical time. Small businesses are proven engines of job creation in the U.S. economy. And, under the weight of continuing unemployment and already falling business confidence measures, we cannot afford to burden such a vital source of economic growth.

Job Creators Alliance recognizes that America needs tax reform; the current system is too complex and bloated. We need to streamline regulations to create a favorable business and investment climate where enterprise can flourish and small business owners can regain confidence in their returns. But President Obama’s proposal addresses none of these needs. I just hope he’ll listen to his party–and countless employers and employees–before it’s too late.