Bush’s claim that his tax cuts for high-income individuals are good for small business again fails to hold up under scrutiny. (For more on small businesses and taxes, see “Reforming the Tax Code to Assist Small Businesses” (pdf))
“It turns out that 75% of taxpayers who benefited from the reduction of the top bracket were small business owners,” Bush said, noting that small businesses pay taxes at individual income tax rates. “So when you hear ‘tax the rich’ you’re really talking about taxing Mom and Pop businesses.”
Williams said that it’s true that the majority of taxpayers in the top income tax bracket (currently 35%) report business income, but those taxpayers don’t represent the majority of small business owners.
According to a Tax Policy Center analysis, over 90% of small business owners report income that puts in them in the 26% tax bracket or below.
Many of the top-bracket taxpayers who report self-employment income get most of their income from salaries, investments and stock options, Williams said. Of those taxpayers, only 50% make more than half of their total income from their business, and 25% get less than a tenth of their income from their small business, he said.