The fallacy that the tax increase hurts business

Ever since President Obama first said he would increase taxes on those earning over $250,000 per year (which was when he was still only a candidate), Republicans have been parroting the claim that doing so would harm American business. They claim that many people who earn over $250,000 per year own small businesses and that to increase their taxes would stifle the growth of their businesses.

There’s a fatal flaw to this logic. The President's tax increase on people earning over $250,000 per year is a personal income tax, not a business tax. If the owner of a business (whether it is large or small) has a $250,000 salary, the owner’s salary was already an expense of that business before the tax increase. Adding to the tax does not increase the expenses of the business one penny; it only decreases the amount of the salary that the business owner gets to spend.

In fact, it could be said that the business owner earning over $250,000 per year was already stifling the growth of the business himself before the tax increase. Taking such a large salary reduces the amount of the business’s earnings that gets put back into the business. If the business owner is truly concerned about the tax increase, he could simply reduce his salary down below $250,000 per year. Then the business owner avoids the tax increase and his business retains more earnings, providing it with greater assets to grow on (or to use to weather this recession). That’s a win-win solution.

Republicans also claim that the tax increase on the wealthy discourages Americans from pursuing the American dream of building wealth. If that were the case, it would mean that when the tax increase is enacted, those earning over $250,000 per year would suddenly resign their high paying jobs or cut back to part time. The truth is they might have to actually work a little bit harder since they have a little less discretionary income to sustain their wealthy lifestyles. At the other end of the wealth spectrum, there is not a single average wage earner in this country who will now cease aspiring to earn over $250,000 per year. That tax increase is a problem 95% of Americans would love to have.