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Restoring Top Tax Rates Makes Sense for Small Business

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"Expecting high-end tax cuts to trickle down as job creation is about as reasonable as pouring gasoline on your hood and expecting it to fuel your car."
-- Lew Prince, owner, Vintage Vinyl, an independent music store.

Congress left town in early October without addressing the future of the Bush-era tax cuts that are scheduled to expire at the end of 2010. This sets up a "lame duck" session debate over their future in November and December.

After the mid-term election, anti-tax legislators will press to extend tax cuts for households with incomes over $250,000. Anti-tax activist Grover Norquist argues that allowing these tax cuts for higher incomes to expire would be a "body blow to the small business community."

This isn't the first time small businesses have been used as a prop by anti-tax lobbyists. The impact on small business is routinely used in arguments against policy that would require wealthy individuals to pay higher taxes.

Enter several refreshing new voices in this debate -- the American Sustainable Business Council and Business for Shared Prosperity -- networks of enterprises rooted in their localities. In their recent report, "Restoring Top Tax Rates Makes Sense for Small Business," they make a business case for allowing the top tax rates to expire.

These business organizations point out that very few small businesses are effected. Less than 3 percent of tax filers with any business income earn over $200,000 as individuals or $250,000 as couples in a year -- and many of these are Wall Street investment partners, big business CEOs paid to sit on boards of other big companies, and wealthy folks renting out investment properties and vacation homes.

If Congress wants to help small business, they argue, Congress shouldn't spend $700 billion over the next decade in poorly targeted tax cuts.

"Letting high end tax cuts expire is a good business decision," said Frank Knapp, CEO and President of the South Carolina Small Business Chamber of Commerce.

"Boosting our local economy by helping real small businesses create jobs should be our goal. We can either cut taxes for CEOs or Wall Street traders, or we can invest the money to generate more customers for small business by keeping teachers, police officers and other Americans on the job rebuilding the crumbling transportation, water, and energy infrastructure small business depends on."

This longer view is echoed by other small business leaders who lament the decline in public infrastructure and investment that strengthens local economies. They challenge the tired orthodoxy that cutting taxes for high-income households always has a positive impact on economic growth and job creation.

Hiring decisions for small business are driven by consumer demand, not tax cuts. "As a fellow businessman once told me," said Rick Poore, owner of Design Wear, an apparel manufacturer based in Lincoln, Nebraska, "Give me more customers and I'll be forced to buy equipment and hire people to meet demand. Give me a tax break without more customers and I'll just go to Aruba."

Under President Obama's plan to extend the 2001 income tax cuts for families with incomes under $250,000, all taxpayers will get a share of tax cuts. Higher-income taxpayers would get thousands of dollars more in tax cuts than middle-income households. The congressional Joint Committee on Taxation estimates that extending just the middle class tax cut would provide more than $6,300 in permanent tax relief for families earning more than $200,000, on average, compared to just $916 in tax relief for families earning between $40,000 and $50,000.

Restoring tax rates for high-income households won't fix our economy. But it is a step in the right direction to fiscal sanity and being able to make investments that move us toward a sustainable economy. That's good for businesses that are committed to their communities.

Originally published at YES! Magazine online.