People were giddy with the pain of the pump, the shock of the grocery aisle, and the ongoing pay cut. For many families, buying a home has become increasingly out of reach. Many are struggling just to pay their monthly energy bills.
As the economy continues to be hit by runaway inflation, falling real wages and the rising likelihood of a recession, the government’s priority should be to help ease the financial burden many face. Instead, Democrats are trying to raise taxes, kill jobs, kill wages and impose price controls.
One job-killing tax increase being considered is an expanded net investment income tax on so-called “pass-through businesses,” or businesses whose income is taxed on the owner’s personal tax return. NIIT is a 3.8% tax primarily on passive income, but Democrats have proposed expanding the tax to apply to actively pass-through income (or what remains after a business pays expenses). The proposal is essentially a small business surcharge that would penalize job creators who can’t afford them the most.
Democrats want to pass this sales tax surtax on top of the federal income tax business owners already owe. Currently, business owners have to pay a whopping 37% share of the net business earnings — even if they decide to reinvest all that earnings back into their business and take nothing for themselves. An expanded NIIT means business owners could face marginal tax rates of up to 40.8% — and that’s before state income taxes are factored in. Forty-three states have personal income taxes with an average top marginal tax rate of 6.4%, which means that all in all, the marginal tax rate passed on to business owners is a combined 47.2%, some of which are owed more.
This small business surcharge penalizes small and medium businesses for hard work, investment, growth, and success by depriving owners of nearly half (or more) of their income. This is a success tax that will penalize small businesses even with moderate success. The nonpartisan Joint Committee on Taxation estimates that massive new taxes on these businesses, totaling $252 billion, will hurt what Democrats say they champion: workers and entrepreneurs.
It’s also a marriage tax, by penalizing business owners who have jointly filing spouses, who each contribute income, more severely than unmarried ones.
In addition, higher taxes on producers affect everyone: workers and consumers, business owners and non-business owners. If Democrats get their way, businesses will have no choice but to raise prices. This is bad news for an economy already in recession.
Why are we making it harder for small businesses and workers to compete, stay successful, and help us get out of our current economic quagmire? This serious tax and overspending strategy defies logic.
There are more than 32 million small businesses in the United States. Together, they support more than 61,000,000 jobs. They are integral to rebuilding and strengthening our economy. However, with labor shortages, rising inflation, tough new regulations and supply chain disruptions, many small businesses are struggling to stay afloat. In fact, the National Federation of Independent Business found that optimism among small businesses is at historically low levels, with expectations for better conditions worsening each month this year.
Democrats’ small business surcharge will further bury Main Street. This is not in the best interests of business owners, American families or the economy.
With consumer price inflation at 9.1% and wholesale price inflation at 11.3%, it’s clear we need to stop the Democrats’ irresponsible spending and permanent tax hike proposals. Otherwise, we could be accelerating in the wrong direction on the path of soaring inflation and recession.
