DC City Council Proposal to Raise Income Tax Would Take Heavy Toll on Small Businesses

May 21, 2010, 18:51 ET from Americans for Tax Reform

Proposed income tax increase would hit over 5,000 small businesses

WASHINGTON, May 21 /PRNewswire-USNewswire/ -- As the D.C. City Council works to meet the May 27 budget deadline, Council members Jim Graham, Michael Brown, Tommy Wells, and Harry Thomas are continuing their push for an income tax hike. Under their proposal, there would be two new top marginal rates of 9% for those annually earning between $200,000 and $1 million, and 9.4% for those earning income in excess of $1 million.

"This type of fiscal policy is dangerous because it perpetuates a reliance on upper income households and individuals. By levying higher taxes on top earners, you drive top earners to the point of capital flight; as they are the most capable of relocating. As a result, such tax increases often fall short of revenue projections," said Grover Norquist, president of Americans for Tax Reform. "Increasing the District's reliance on high income earners also increases revenue volatility, leading to significant fluctuations in tax collections. This is a large part of why California is so fiscally dysfunctional and not something DC should seek to imitate."

Higher individual income tax rates would also affect small businesses throughout the District, many of which file under the individual income tax system. Americans for Tax Reform, using IRS data, has calculated that this proposal for two new top rates would raise taxes on the 5,114 small businesses in the District that file under the individual income tax system. This figure does not include the many small business owners of S-corporations and partnerships who earn this amount of income and would also be affected.

"Like raising taxes on cigarettes or alcohol, profligate politicians find it politically expedient to raise taxes on high income individuals and households. What is missed is that higher taxes on 'the rich' also hit small businesses," add Norquist. "After raising taxes on sales, gas, and even bags just last year, it's hard to believe that DC officials think it's wise to follow up with a massive tax hike on the key driver of economic growth and job creation that is DC's small business community. In this economy, the last thing Council members should want is to appear hostile to business. Yet, that is precisely what the proposed income tax hike would do."

Americans for Tax Reform is a non-partisan coalition of taxpayers and taxpayer groups who oppose all tax increases. For more information or to arrange an interview please contact John Kartch at (202) 785-0266 or by email at jkartch@atr.org.

SOURCE Americans for Tax Reform