Obama's War on Small Businesses

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.