Last Wednesday’s The Hill included a comprehensive overview of the exploding spending and deficit picture and calls into question President Obama’s ability to live up to his long-held promise not to raise middle class taxes. It’s worth a look.

For the past half-year, your S-CORP team has focused on President Obama’s long-stated goal to pay for health care reform and his other spending priorities by raising taxes on American families making more than $250,000 per year, all while cutting taxes for middle-class families.

With the Federal deficit approaching $2 trillion this year, however, just how does one expand government, reduce the deficit, and cut taxes for a large swath of taxpayers – all financed by less than five percent of the population? As The Hill reports, skepticism that the Administration can pull it off is on the rise:

“President Obama’s proposed changes to the tax code, combined with exploding entitlement costs, will lead to ever-growing debt, according to independent estimates. The big question for Obama and his economic team will be whether he can meet the rising costs with increased tax revenue only from small slices of the electorate. Many economists, including some who voted for Obama, do not believe that he can indefinitely avoid imposing tax increases much further down the income scale – on the middle class.”

It is becoming increasingly obvious that taxes on the middle class - not just the “wealthiest” - will need to go up to pay for the Obama Administration’s ambitious goals. Exactly what sort of taxes? Len Burman at the Tax Policy Center thinks a value-added tax is inevitable. Just like France. Great.

CBPP to States — Tax Your Way to Prosperity

If higher taxes at the Federal level weren’t enough, the folks over at the Center on Budget and Policy Priorities (CBPP) have a novel recommendation for states hurt by the current recession — balance your books by taxing job creators!

In a report entitled “Reforming the Tax Treatment of S-Corporations and Limited Liability Companies Can Help States Finance Public Services,“ the CBPP provides a blueprint for and encourages states to “consider imposing meaningful levies on S-Corps and LLCs as a source of additional revenue to help close the major budget gaps many of them are facing.” Sure, gaps like those created by the extra unemployment checks for folks laid-off when their over-taxed business closes.

Enough said.

Private Enterprise and Job Creation

On a more positive note, our friends at the Kauffman Foundation have taken the new Business Dynamics Statistics series at the Census Bureau and crunched the numbers a bit.

What they have found is presented in a series of short papers that does a great job of demonstrating the critical importance of start-up businesses to job creation. Key findings include:

  • More than 100 percent of all net new jobs in any particular year can be attributed to start-up businesses. Or put another way, absent new business creation every year, employment in the United States would shrink.
  • Remaining net job growth comes from firms more than a quarter century old. Their job creation levels are low compared to younger firms, but unlike younger firms, surviving older firms create more jobs than are lost when older firms close.
  • States differ substantially on the portion of employment attributed to younger companies (less than 3 years old). In the West and Southeast, it’s up to 12 percent, while in the Midwest and Northeast, it’s about 6 percent.

How does this add to our understanding of job creation and job creators? The important role of start-ups and entrepreneurs has been examined for hundreds of years, but who knew that older, more mature firms were a source of net job creation? Findings like this put the whole estate tax debate and the importance of transferring businesses from one generation to the next into a whole new light.

Your S-CORP team is often amazed at the gulf between the rhetoric over jobs and the actions of some policymakers. Everybody talks about the importance of jobs and job creators, but the policies supported by some folks make you wonder just how deep their understanding and commitment goes.

The work at the Kauffman Foundation gives us critical insight into the job creation process. We hope policymakers — especially those engaged in estate tax discussions — will pay attention.