Why the Buffett Tax is a tax on small business

I did not know this: 68% of million dollar personal income tax returns are actually S-Corporation businesses. The business owner has the business income pass through his or her personal return. They are taxed on this money whether they distribute the gains or not. The available capital for these owners to reinvest is reduced by the top marginal tax rate. The Buffett Rule would impose a new sort of AMT on these owners.

Obama and Elizabeth Warren can say that these people can afford it, but for most million dollar returns, you’re not actually talking about a person, you’re talking about a business.

 



Discuss

3 Comments . Leave a comment below.
  1. They're already paying more than 30%

    With $1,000,000+ in income these folks are already paying 35% in income taxes plus self employment tax. The 30% rule would hurt these S Corp owners on their capital gains by increasing that rate to 30%, but it’s not going to touch their S Corp income.

    With a proper accounting system these business owners should be able to keep track of their profit over the course of the year and invest in their business during the year to offset the taxable income.

    chrismatth   @   Thu 2 Feb 12:47 PM
    • Excellent point.

      See also this commentary from Politifact, which rated as “false” John Boehner’s statement that “Over half of the people who would be taxed under (a millionaire surtax) are, in fact, small businesspeople.”

      Relatedly, did you know that in 2005 (most recent data I could quickly find), over 12,000 S corporations had annual revenues of over $50 million?

      In other words, seascraper’s argument is a tired and discredited GOP talking point. Sorry, but you’ll have to do better.

  2. Baldedash and hogwash

    The business owner has the business income pass through his or her personal return. They are taxed on this money whether they distribute the gains or not. The available capital for these owners to reinvest is reduced by the top marginal tax rate.

    Where on EARTH do you get this stuff?

    S-Corporations can have multiple shareholders, just like C-corps. Shareholders in S-Corps choose this path so that they can pay taxes on income at personal, rather the corporate, rates. This arrangement benefits the shareholders.

    Shareholders of S-Corporations are taxed on their portion of any gains. The entire point of creating an S-Corp is pass the tax consequences on to the shareholders “whether they distribute the gains or not”. Unlike a C-Corp, the S-Corp has ZERO tax exposure on those gains. This strategy reduces the tax exposure of shareholders, in comparison to a C-Corp. Today, LLCs (Limited Liability Corporation) are more common than S-Corporations anyway, and share the same benefits.

    A common strategy for business creators is to form a C-Corporation that is used to hold assets during development, so that the losses can be accumulated by that C-Corporation (S-Corps and LLCs cannot accumulate losses from year to year in the same way). When the assets become profitable, they are transferred to an LLC or S-Corp so that those gains are taxed at reduced personal rates. The entire game is already set up to benefit those business owners, so what is your problem with it?

    Not only is this a “tired and discredited GOP talking point”, but the bulk of it just doesn’t make any sense.

« Blue Mass Group Front Page

Add Your Comments

You must be logged in to post a comment.

Sat 25 Oct 7:55 AM