If President Obama has his way and wins re-election here's what we can expect in his war on the rich.
1. Income tax increase. A main point of President Obama’s re-election campaign is to raise the tax rates on the top two tax brackets. For the most part, small employers pay their small business taxes using individual tax rates. So if individual tax rates are raised, so are small business tax rates. The top income tax rate is scheduled to go from 35% in 2012 to 39.6% in 2013. According to the IRS a clear majority of all small business profits face taxation at this top marginal income tax rate. For all intents and purposes, the top income tax rate is the small business tax rate in America today.
President Obama claims that he is raising taxes on “millionaires and billionaires” but are actually targeting successful small companies. A new study by Ernst and Young projects that this tax rate hike will kill 710,000 small business jobs.
2. Death Tax Increase. The death tax in 2012 has a top rate of 35% and a standard deduction of $5 million ($10 million in the case of a married couple or surviving spouse). President Obama wants to raise the rate to 45 percent and slashing the standard deduction to $3.5 million.
When a family business owner dies, it’s up to the surviving family members to pay the death tax to the government. Needless to say, many successful, job-creating small businesses simply won’t survive this process. These families will have little choice but to sell the business (and lay off all the employees) in order to pay the IRS. The L.A. Dodgers are a prime example.
3. ObamaCare self-employment tax rate increase. As it stands right now successful small business owners face a self-employment tax of 2.9%. Thanks to ObamaCare’s 2013 hike in this tax rate, this will go up to 3.8%. All told, the combination of the income tax hike and the self-employment tax hike will raise the income tax rate on small business profits from about 38%about 43% in 2013. That extra five percentage points might not sound like a lot, but most small employers have very thin profit margins. A company with $1 million in profits facing a higher tax rate of 5 percentage points will be saddled with another $50,000 in taxes.
4. ObamaCare Medical Device Tax: Taking effect in 2013 is a new 2.3% tax on companies making devices such as prosthetic limbs, pacemakers and operating tables is particularly destructive because it is levied on gross sales, even if the respective company doesn’t earn a profit in a given year. This industry employs 409,000 Americans in 12,000 plants across the country, and many incur a loss for several years as they pioneer the next generation of life-improving devices.
This looming $20 billion tax is already causing small business job loss and cuts to research and development budgets. Even liberal Democratic Massachusetts Senate candidate Elizabeth Warren who's Native American name is, 'Fauxcahontas' knows the medical device tax is destructive to small business. In an op-ed in opposition to the tax she wrote: “When Congress taxes the sale of a specific product through an excise tax, as the Affordable Care Act does with medical devices, it too often disproportionately impacts the small companies with the narrowest financial margins and the broadest innovative potential. It also pushes companies of all sizes to cut back on research and development for life-saving product.”
80% of these device manufacturing companies have fewer than 50 employees, according to the Medical Device Manufacturers Association. Many of these small businesses are located in electoral swing states such as Ohio, Wisconsin, Florida, and New Hampshire.
5. ObamaCare Investment Surtax: Also taking effect in 2013, this tax increase captures those few small business owners not covered by the self-employment tax hike (can't let some one escape) owners of Subchapter-S corporations and limited partners. These owners are currently exempt from self-employment tax, mostly because they are investors rather than proprietors. But ObamaCare sweeps them into the IRS net too forcing them to pay the 3.8% tax as an “investor surtax.” This will make it far more difficult for investors to raise money to start up small firms. An investor is going to need to see even greater small business profit projections to overcome this higher rate of taxes. Not only does a small business owner have to give his investor a strong return on his investment, he now has to do it with a giant tax mill stone around his neck.
These five tax increases only begin to scratch the surface. Small employers are also facing the ObamaCare employer mandate tax penalty starting in 2014. This tax provision will force small businesses with more than 50 employees to purchase qualifying health insurance or else face a tax of up to $2,000 per employee. It may turnout that it's cheaper to pay the tax penelty than to pay the insurance premiums for their employees.
Whether he realizes it or not, President Obama’s tax policies will result in fewer and less successful small businesses, fewer small business jobs, fewer family businesses that can be passed along from parents to children, fewer medical device manufacturing jobs, and much less investment in small employer start-ups.