How do Personal Income Tax Increases Affect Small Business?

December 19, 2012

The current debate over the fiscal cliff seems to be centered around whether the threshold for tax increases should be $200,000 to $250,000 (as the President wants) or $1 million (John Boehner's "Plan B.") It's worth pointing out that a lot of the income in this range comes from small businesses, many of which file are taxed under the personal rather than the corporate income tax. Below is a table showing the percentage of income that is either business income, partnership income, or S-corp income, on tax returns in various income ranges, by state:

Combined Partnership/S-Corp/Business Income as Percent of AGI, Tax Year 2010

State All returns Rank Returns with Income Over $200K Rank Returns with Income over $1M Rank
Alabama 7.53% 30 26.52% 10 34.16% 13
Alaska 9.99% 6 32.18% 3 48.66% 1
Arizona 6.15% 47 20.10% 34 25.50% 35
Arkansas 6.95% 40 19.99% 35 17.58% 45
California 9.60% 9 19.50% 42 24.33% 39
Colorado 7.68% 27 17.61% 49 16.71% 47
Connecticut 10.82% 1 18.94% 45 21.71% 43
Delaware 6.04% 48 19.40% 44 29.18% 22
Florida 8.41% 17 22.36% 23 26.45% 32
Georgia 6.85% 42 21.64% 28 28.49% 26
Hawaii 7.45% 31 24.71% 16 35.19% 10
Idaho 8.73% 11 32.17% 4 42.84% 3
Illinois 7.74% 24 19.44% 43 24.35% 38
Indiana 7.53% 29 28.55% 7 39.16% 6
Iowa 7.40% 34 25.10% 14 37.24% 8
Kansas 8.41% 16 24.35% 18 29.48% 21
Kentucky 7.42% 33 26.09% 11 31.00% 18
Louisiana 10.67% 3 33.22% 1 40.63% 4
Maine 8.00% 21 23.38% 21 32.64% 15
Maryland 8.03% 20 22.26% 26 37.30% 7
Massachusetts 9.97% 7 19.74% 38 26.55% 31
Michigan 6.63% 43 20.23% 33 27.44% 29
Minnesota 7.79% 22 20.33% 32 28.09% 27
Mississippi 8.04% 19 26.96% 8 25.48% 36
Missouri 7.77% 23 24.56% 17 32.31% 16
Montana 10.34% 5 32.70% 2 44.65% 2
Nebraska 8.70% 12 25.18% 13 29.74% 20
Nevada 5.12% 50 17.67% 48 17.22% 46
New Hampshire 6.37% 45 11.62% 50 9.67% 50
New Jersey 8.70% 13 18.33% 47 26.33% 33
New Mexico 6.54% 44 22.28% 25 28.69% 25
New York 9.75% 8 19.75% 37 22.64% 42
North Carolina 6.87% 41 21.15% 29 29.78% 19
North Dakota 10.74% 2 29.12% 6 39.68% 5
Ohio 7.26% 35 23.31% 22 32.10% 17
Oklahoma 9.20% 10 26.90% 9 34.51% 12
Oregon 7.69% 26 22.35% 24 28.80% 24
Pennsylvania 7.42% 32 19.62% 39 24.36% 37
Rhode Island 8.48% 15 24.72% 15 33.95% 14
South Carolina 6.33% 46 22.23% 27 27.58% 28
South Dakota 10.42% 4 30.09% 5 35.11% 11
Tennessee 7.68% 28 19.83% 36 18.92% 44
Texas 8.63% 14 20.67% 30 25.67% 34
Utah 7.72% 25 25.50% 12 28.87% 23
Vermont 8.16% 18 20.38% 31 24.29% 40
Virginia 7.24% 36 18.40% 46 26.88% 30
Washington 7.12% 38 19.61% 40 23.85% 41
West Virginia 5.99% 49 23.97% 19 15.37% 49
Wisconsin 7.05% 39 23.95% 20 35.66% 9
Wyoming 7.17% 37 19.60% 41 16.14% 48
District of Columbia 11.97% 25.92% 34.50%
United States 8.28% 20.79% 25.77%
Source: IRS

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