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Tax Hike on Pass-Through Businesses Twice that on “companies that ship jobs overseas”

1 min readBy: Scott Hodge

In a recent report, TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation economists estimated that nearly 40 percent of the nearly $630 billion tax increase on high-income taxpayers proposed in the Obama 2001 budget would be extracted from business income. That amounts to a ten-year tax hike on pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. income of $246 billion.

While some have tried to trivialize the impact of these higher tax rates on businesses by repeating the true, but misleading statistic that “only” 3 percent of taxpayers with business income will be affected, this tax increase on pass-through business income is actually double what Obama has proposed for the largest U.S. firms that he claims are “shipping jobs overseas.”

Indeed, Obama’s proposals to “reform” the deferral and foreign tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. rules that he blames for the outsourcing of jobs are estimated to raise $122 billion over ten years – less than half of what will be extracted from pass-through businesses.

Even if we were to add to this amount the $14 billion Obama’s budget would raise from insurance companies, the $39 billion it would raise from the oil, gas, and coal industries, and the $59 billion it would raise from changing the LIFO rules, the total would still be less than the tax increase on pass-through businesses.

Considering the fact that, next to Japan, the U.S. has the highest corporate tax rate among industrialized countries, no amount of new taxes on businesses large or small seems justified.