Did you know that the livelihood of 85 million Americans depends on the success of small businesses? So you’d think that the government would encourage the creation and preservation of small businesses. Instead, the federal government taxes small business owners at about 40% — not including additional state or local taxes. Watch this week’s video to find out the effect of that tax rate on small business owners, on job creation, and on the economy as a whole.
Our business and economics series is a collaborative project with Job Creators Network. To learn more about JCN, visit www.jobcreatorsnetwork.com.
No matter where you come from, what your job is, or where you stand politically, you have to pay taxes. Uncle Sam needs taxpayer dollars to pay for things like schools, fire fighters, and the military.
There are all sorts of different taxes: income taxes, payroll taxes and sales taxes just to name a few. But individuals aren’t the only ones who pay taxes—businesses pay income taxes too.
Businesses that are set up as corporations pay taxes on their income at the US corporate tax rate of around 35 percent—one of the highest in the developed world. Countries like Ireland and Switzerland have corporate tax rates well under 25 percent, which can give companies based there a competitive advantage.
But there’s another taxed group that we’re forgetting…small businesses. There are 29 million of them in the US and they employ nearly 56 million people. That’s a total of 85 million people dependent on the success of small businesses!
Small businesses are most often set up as sole proprietorships, partnerships or another designation called an S-corp. But the money they make isn’t taxed at the corporate rate. The profits earned by these small businesses are “passed through” to the owner and counted as individual income on their personal tax return. That’s why you might hear small businesses referred to as “Pass-throughs.”
These entrepreneurs can pay tax rates as high as 40 percent not including additional state and local taxes, that means many American small businesses are being taxed at a higher rate than businesses anywhere in the world.
Why should you care? Because high taxes hurt small businesses ability to grow and expand, causing them to raise prices or even trim jobs to stay within their budget constraints.
Lowering taxes for small businesses or “pass-throughs” results in the growth of small businesses—allowing them to provide more jobs and boost the economy for everyone. After all two thirds of all new jobs come from small businesses and lowering taxes can have a big effect on the entire economy for all Americans.
So the next time you hear someone supporting an increase in tax rates on businesses, remember that very important group of small business owners and the 85 million people dependent on their success.