The House health reform bill’s proposal for a surcharge on high-incomes has unfortunately and incorrectly been portrayed as a tax on small business that would discourage entrepreneurial activity. The fact is that the surcharge – a marginal tax on 1% of income for married couples earning between $350,000 and $500,000, 1.5% on incomes between $500,000 and $1 million, and 5.4% of incomes over $1 million — would have little effect on small businesses.
According to the Joint Tax Committee, nearly 96% of taxpayers with any business income would pay no additional taxes from the surcharge. Of the 4% remaining, only half earn more than one-third of their income as business income. Furthermore, according to a study by the Center on Budget and Policy Priorities, among tax filers reporting any business income, only 1.4% derive more than half of their income from this source and would be subject to the surcharge. It is worth remembering that this group includes partners in large law and accounting firms, not the typical idea of a struggling small business owner.
In reality, the surcharge affects only the highest 1.2% of taxpayers. Fewer than one quarter of taxpayers who would be subject to the surcharge derive more than half of their income as business income. The surcharge is simply not a tax that the vast majority of small businesses would have to pay, let alone find crippling.
The fact is, small businesses have much to gain from the House health reform bill. It would provide them tax credits to help with the purchase of insurance and substantially improve their access to more efficient and less discriminatory insurance pricing. Recent research demonstrates that the smallest of businesses that currently offer insurance would save more than $3,500 per worker with the House bill.