Senate Majority Leader Harry Reid (D-NV) reportedly plans to bring up the President’s Jobs Bill this month and pay for it with a new 5 percent “surtax” on taxpayers making more than a million dollars. According to Politico:
Senate Majority Leader Harry Reid is eyeing a tax on the nation’s highest earners as a way to defray some of the $447 billion price tag for the White House-written jobs package-a move that would shift attention away from its underlying policies and more towards party politics. Sources on and off Capitol Hill said Reid wants to swap out the bill’s current rack of “pay-fors,” and replace them with a package including a surtax of 5 percent on millionaires.
And the New York Times:
The Senate majority leader, Harry Reid, Democrat of Nevada, said the surtax would raise $445 billion over 10 years, just about the amount needed to pay for the jobs bill. Mr. Reid said his proposal would “have the richest of the rich pay a little bit more -5 percent more to fund job creation and ensure this country’s economic success.”
Assuming the tax is exactly as described — a five percent tax on income exceeding $1 million — how many businesses might be affected? For business income, the recent Treasury study on pass-through business activity gives us an idea. These numbers are from 2007 so they are a bit dated, but unlike the more recent IRS data, they are broken down both by business owners and income levels.
According to Treasury, 392,000 taxpayers had incomes exceeding $1 million in 2007. Of those, 331,000 reported some level of business income, while 311,000 met the Treasury’s definition of “business owner.” (Click here to read our concerns about that.)
So, four out of five taxpayers targeted by the millionaire surtax are business owners. What negative impact might such a tax have on jobs?
Last December, the Heritage Foundation estimated the jobs impact of allowing tax rates on taxpayers making more than $1 million to revert to their old levels. They estimated average annual job losses of 198,000 for the decade, with 78,000 job losses in 2012. The tax hike described above is bigger.
So the Senate’s plan is to pay for the President’s Jobs Bill by raising tax rates on hundreds of thousands of business owners. If the point of the Jobs Bill is to create jobs, not lose them, we’re not sure this is the best approach.