Tax increase won't hurt small business

My wife and I own a small business in Medford, so that makes us one of those small business owners many in Congress keep referring to in the heat of the debate over the fiscal cliff when they say that ending the Bush-era tax cuts for household incomes above $250,000 a year will hurt small business job creators. But the truth is, we won't be affected because our business doesn't earn enough to get us close to that quarter-million-dollar threshold. Nor do the earnings of 98 percent of all small businesses.

Here's why:

We don't pay taxes on the gross amount our business earns. We deduct our business expenses first. The rent, payroll, utilities, insurance, etc. All the way down to the brooms we use to sweep the floors. If I have a 10-percent profit margin, we'd need a gross business income of $2.5 million to take home a profit of $250,000.

Even then, before we pay taxes on our profits we get to take our personal deductions. Got a house with a mortgage? Deduct the interest payments. Got kids in college? Deduct tuition costs. Paying into a 401(k) for retirement? More deductions. After all of this is subtracted, we go to the tax tables and figure out what we owe.

Few would pay more

The upshot is that only a fraction of small business owners — between 2 percent and 3 percent — earn enough to have $250,000 in taxable income left after applying all of these business and personal deductions.

Here's another wrinkle. Tax rates are "marginal." The guy taxed on $10 million will pay the same amount on his first $250,000 of earnings as he does now. Only the income above that threshold is subject to a higher rate.

Take a small business owner whose profit after deductions is $350,000. The proposed increase applies only to the $100,000 above $250,000. If his current tax rate is 25 percent, he is paying $80,000. That would become $83,000. Less than a 1 percent increase in his overall tax rate.

Bottom line? The new rates will save the country almost a trillion dollars over 10 years. It will not come from the middle class. It will come from fairly comfortable people, who I would call wealthy, and who could cover any tax increase with a good day in the stock market.

A trillion dollars could go a long way. It could strengthen Medicare and Medicaid, be invested in our infrastructure and pay down our debt. It could provide paychecks to people hired to rebuild roads and bridges.

Those newly employed workers would pump dollars into the economy, pay more taxes to the Treasury and be able to afford the services of our business. We could hire more workers to handle their business, and our workers would pay taxes. Our profits would go up and, despite any increase in taxes we might have to pay, our after-tax income would increase. So we could travel more, buy more cars and donate more. Everyone wins.

It's time to do what's right for small businesses and the country: end the Bush tax cuts for the richest 2 percent. As a small business owner, I'm all for it.

Mark Kellenbeck co-owns BrainJoy LLC in Medford and is co-chairman of the Main Street Alliance of Oregon.

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