- The Washington Times - Wednesday, April 15, 2009


The American taxpayer once again finds himself at that most dreaded of days, April 15. On this day, he must settle up his tax bill with Uncle Sam.

What many Americans don't realize is that tax day is about much more than just paying taxes. It's also about every American's job, small business, energy use and retirement nest egg.

The Internal Revenue Service reports that about 138 million American families will have to file a tax return this year. Families pay an average of $7,500 in federal income taxes. This doesn't count Social Security and Medicare taxes, unemployment tax, self-employment tax, state and local income and sales taxes, property taxes and the whole myriad of taxes at all levels of government.

Not all families pay. About one-third of the 138 million tax returns will show zero taxes owed or will claim a tax welfare check called a refundable credit. Half of income earners - those making less than $32,000 - will pay just 3 percent of all income taxes. The top 10 percent of income earners - those making more than $109,000 - will pay more than 70 percent of all income taxes. The richest of the rich, the top 1 percent (those earning more than $400,000) will pay 40 percent of all income taxes.

Not everyone in America pays federal taxes. There are the producers of income, and there are those who benefit from the government “redistributing” income to the politically connected, non-taxpaying population. Let's take a look at who pays taxes in America.

Small businesses are a good place to start. According to the Census Bureau, there are 21 million owner-only businesses in the United States. There are an additional 6 million firms that employ 99 or fewer people. Taken together, this is a good approximation of the small-business sector.

Small businesses - sole proprietors, Subchapter-S corporations, and partnerships - are not like corporations, which ostensibly pay their own taxes. Rather, small-business owners pay taxes on their profits. So, the tax rates and rules on individuals have everything in the world to do with how we tax our small-business sector.

It isn't pretty. Small businesses must pay the same graduated income-tax rates as everyone else. These go as high as 35 percent, but President Obama and congressional Democrats want them to go as high as almost 40 percent. Additionally, most small businesses pay a “self-employment” tax to account for Social Security and Medicare taxes. This rate is 15.3 percent on the first $105,000 or so of small-business profits and 2.9 percent above that. Throw in state income taxes, and many small businesses easily face marginal tax rates between 40 percent and 50 percent. Even Warren Buffett has a lower marginal tax rate than that.

Mr. Obama's budget calls for raising the top two tax rates so that the top rate would reach nearly 40 percent. The administration claims this will affect only a small number of small businesses, and that's undoubtedly true. But most of the small-business profits - the same profits that employ the one-third of Americans who work in those small firms I mentioned earlier - will face these higher tax rates.

In fact, according to the IRS, $2 out of every $3 in small-business profits is taxed in households making more than $200,000 per year. To raise tax rates on these households is to raise tax rates on most of America's small-business sector.

Then you have energy. Every American uses energy every time he turns on a light switch, drives to the store or picks up the kids from practice. If the Obama-Pelosi-Reid budget is implemented, a $3,100 family surtax will be imposed each and every year to pay for a new carbon tax known as “cap-and-trade.” In addition to the cap-and-trade tax, the Obama budget would impose even more taxes on gas, oil and energy production and use. That would cost the average family an additional $7,000 each year in higher energy costs and lower wages.

Finally, there are America's retirement savings. The stock market has taken quite a beating over the past year. Talk of higher taxes, destabilizing bailouts and European levels of regulation will tend to do that. As a result, too many Americans' 401(k)s look more like 201(k)s. Another body blow is in the Obama-Pelosi-Reid budget. It plans on raising the capital-gains and dividends tax rate from 15 percent to 20 percent. Stocks price in their after-tax value. Raising the tax rate on stocks by a third will reduce their after-tax value. Prices will come down accordingly. That means that even if your nest egg is in tax-advantaged accounts like 401(k)s and individual retirement accounts, you'll feel the pinch.

So on this tax day, if you are a taxpayer, you are doing far more than just giving money to the government. Because of the high and onerous taxes you and I have to pay, there are fewer small businesses employing fewer people.

Energy costs will keep going up, and your retirement savings will keep going down. But Mr. Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi have words of encouragement this year: “Get back to work.” You need to work harder so they can take your money and share it with their campaign contributors.

Grover G. Norquist is president of Americans for Tax Reform.

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