The politically charged debate over high-income tax cuts is reaching a fever pitch, and the question on everyone's lips is whether small businesses' hiring ability will suffer if these cuts expire. Scientific opinion polling released last week shows what real small business owners think, and it might surprise you. The majority of small employers in the poll -- more of whom identify as Republican than Democrat, an important distinction given the partisan nature of this debate -- believe allowing tax cuts for the wealthiest 2 percent to expire at the end of the year is the right thing to do in light of our budget crisis.
The truth of the matter is that small business owners are far more concerned about improving economic conditions for the middle class -- a category virtually all their customers fall into and which 97 percent of them are part of, too. According to an independent telephone poll we released last week, 86 percent of small business owners oppose increasing tax rates for household income below $250,000, and 7 in 10 strongly oppose it. What's more, a 52 percent majority supports letting cuts on household income above $250,000 expire.
These entrepreneurs recognize the important role middle class Americans play in the overall success of our economy. If they see an increase in their tax rates, as is scheduled to occur at the end of this year, middle class customers will have less disposable income. Less money in their pockets means less demand for small businesses' goods and services, and that's something that could affect small business hiring decisions.
As someone who has been in the top income brackets before and who probably will be again this year, Anne Zimmerman, owner of Zimmerman and Company CPAs in Cincinnati, Ohio, should understand the situation better than most. "I can tell you with certainty that being in the top tax brackets has nothing to do with my hiring decisions," Anne said. "There's no way I'd let a couple percentage points being added to my personal tax rate get in the way of business decisions. I make those decisions by considering demand for our services, plain and simple."
That ties into another widely-used, but misguided, small business argument for extending the high-income tax cuts: Since a large number of small business owners (like Anne) file their taxes as individuals, their businesses would be extra-sensitive to an increase in the top individual income rates. While 54 percent of small business owners we surveyed do in fact have their business revenue passed through to their personal taxes, only 5 percent reported household income exceeding $250,000. And for that sliver who do earn more than $250,ooo? The increase only impacts income above that threshold, a fact that is vastly misunderstood. Earnings below that amount will continue to be taxed at the lower rate. So how many small business owners are making the really big bucks -- say, over $1 million? We released polling in February that found out of 500 randomly selected small business owners across the nation, only one had income in that range.
These statistics are vital to cutting through the rhetoric surrounding this issue. We wish more small businesses did fall into those top brackets, but that's just not the case. And using small businesses as pawns to pass policies that don't impact them is unethical and frankly "incredibly aggravating," as Anne Zimmerman puts it. "Let them expire!" she said. "It's the middle class that drives demand for my business and it's middle class folks who run most small businesses. Those are the job creators who can drive our economic recovery and who need a tax cut."
In addition to tax cuts, we also asked small business owners what they thought about the role of government and what lawmakers should be focusing on next year. Nearly 6 in 10 agree government can play an effective role in helping small business thrive, and the majority also believes that during the next year it is more important for Congress and the president to focus on a plan to create jobs than on reducing the deficit.
Real Main Street business owners are pragmatic people who know what kinds of policies can help them. And despite spin-doctors who will continue to say otherwise, scientific opinion polling shows these entrepreneurs simply don't believe it's in their best interest to extend tax cuts for high-income earners. Of course, nobody likes paying taxes, but we have a grave budget crisis on our hands. Small business owners get that. Policymakers should listen to what they have to say -- that they'd do better to tailor tax policy to needs shared by the majority than to pocketbooks of a few.