During yesterday’s tax reform debate on the House floor, we heard a lot about the need to cut personal income taxes so that small businesses can create jobs and the economy can grow. This is a growing refrain among advocates for tax cuts for the wealthy, so common in fact, that policymakers made it once before—in 2011, when they passed an exemption of business pass through income, an exemption that they are now repealing (apparently the tax cut didn’t work).
As with many of the claims made during the debate about taxes this session, the idea that personal income tax cuts spur job creation is just not borne out by the facts.
Personal income tax cuts for the wealthiest taxpayers do not target actual small business job creators. Only 2.7 percent of personal income taxpayers are owners of small businesses that have employees, according to the U.S. Treasury Department. Moreover, profits from small businesses with paid employees account for less than 4 percent of the total income earned by households with incomes over $100,000 nationally. There is no evidence that businesses owned by high income taxpayers have more employees than those owned by lower income taxpayers, and as a result, no reason to provide tax cuts that disproportionately benefit those with the highest incomes. And for many small business owners of any income level, there is often limited interest in growing the size of their business—consider a family restaurant, for example—so again, cutting these business’s won’t lead to job creation.