September 9 2010
The Big Question: Would Tax Breaks for the Rich Hurt the U.S.?
Higher Tax Rates Will Deter Job Creation
Proponents of higher taxes on "the rich" dismiss the idea that many of those who are hit by the highest income tax bracket are small businesses-and therefore, are key to job creation. But this isn't just a political talking point. As AEI's Kevin A. Hassett and Alan D. Viard recently explained in The Wall Street Journal:
"According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007." It's very clear, therefore, that small businesses will be affected by the scheduled tax increase.
Having to pay more in taxes means companies (and high-income individuals, for that matter) will have less to spend on other items, from luxury goods to new computer equipment to hiring workers. In that same Wall Street Journal piece, Hassett and Viard cite a study that estimates that the higher tax rates will reduce gross receipts of the effected businesses by 7 percent. That means they'll have less money-and significantly less money in many cases-to spend and use to expand and hire new workers. Indisputably, higher tax rates on businesses mean fewer new jobs, which is exactly the wrong prescription for this economy.