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The surtax will hit only a few businesses: just the good ones

July 20, 2009

One of the "arguments" for the proposed surtax to finance the destruction of health care in this country is summarized by this chart, from a Ways and Means Committee press release:

This sort of argument tries to dance around the issue of whether the tax is wise or not by saying hey, it won't affect many people anyway. The lameness of this argument becomes apparent when you think about what they are counting. For this purpose, a "business" means every Schedule C, Schedule E, or Schedule F filed in the country. It embraces every free-lance writer, part-time musician, moonlighting handyman or Mary Kay salesman in the country. It counts every Shaklee business the same as a family-held multi-state manufacturer or retailer. In short, it's a garbage number.

When you look at how much economic activity gets hit by the surtax, the picture looks different:

Source: The Tax Foundation

The surtax means pass-through businesses that account for 60% of small business profits will be sending more money to the government instead of developing new products, opening new locations, and hiring new employees. Or, more likely, they will be spending money on people like me to change their tax strategies to keep their money from going into the black hole of out-of-control government spending.