There’s a lot of buzz in the small business world about the pending tax hike as the Bush tax cuts are set to expire at the end of the year. Some people are toting these tax hikes as a huge crutch to help plug our nation’s debt while others say that this will be the end of small business as we know it. So what’s the truth? Somewhere in between.
- This is the largest tax hike in history. FALSE. When you take into account population growth, rising wages and the size of the U.S. economy, the largest tax increases were those imposed to help pay for World War II instead of borrowing like we do today.
- These cuts could send us back into the recession. TRUE. With federal spending cuts scheduled to take effect next year, the combination of tax increases and spending cuts would probably send the U.S. economy back into recession according to the Congressional Budget Office.
- The hardest hit by these cuts will the rich. FALSE. Contrary to all the talk stating the cuts were a windfall for the rich, the reality has been that those changes to the tax code have favored households making less than $250,000 a year.
- Top earners on Long Island could be paying almost 50 percent a year in taxes. TRUE. According to an article in the LIBN, personal income taxes for low income earners will go from 10 percent to 15 percent. The marriage penalty will return, and the child tax credit will decline 50 percent to $500 per child. Higher earners will see their 35 percent maximum rate increase to 39.6 percent.
Add in New York’s maximum rate of 8.823 percent and Long Island’s top earners may pay up to a combined top marginal rate of 48.42 percent.
For small business owners, the capital gains tax will go from 15 percent to 23.8 percent. Businesses will also lose a tax credit for R&D as well as lose tax breaks for investments in infrastructure like new plants and equipment. On the individual side, they’ll lose federal tax breaks for paying local sales taxes, buying energy efficient appliances and using mass transit.
All around, these tax hikes won’t be fun. So write your Senator and your Congressperson, tell them it’s time for everyone to work together to avoid a very ugly 2013 and beyond.