The Tax Foundation - More on Business Income and Proposed Tax Increases

July 17, 2009

More on Business Income and Proposed Tax Increases

The recently released Tax Foundation Fiscal Fact showed how the expiration of the Bush tax cuts combined with the proposed surtax would affect the taxation of business income reported in the individual income tax.

The fiscal fact did not show must detail regarding how the surtax by itself would change things. Below, we present both the combined effect of the Bush tax cuts and the surtax, as well as isolating the surtax (assuming the tax cuts for high-income taxpayers have already been repealed) with the figures in parenthesis.

70.1% (72.7%) of returns facing a tax increase have some form of business income
4.8% (3.9%) of all tax returns with business income will face a tax increase
62.6% (59.8%) of all business income is earned by tax returns facing a tax increase
26.0% (26.7%) of all income earned by those returns facing a tax increase is business income
32.5% (32.9%) of all income earned by business returns facing a tax increase is business income
The total tax increase on business income would be $52.5 billion ($15.5 billion), a 24.5% (6.0%) increase, assuming business income is the last dollar of income earned
36.7% (29.9%) of the total tax increase is attributable to tax increases on business income, assuming business income is the last dollar of income earned
The average return with business income would face a total tax increase of $3,246 ($1,182)
The average return facing a tax increase would face a total tax increase of $54,716 ($24,854)
The average return with business income that is facing a tax increase would face a total tax increase of $66,979 ($30,242)
The average return with business income would face a tax increase on business income of $1,388 ($400)
The average return facing a tax increase would see a tax increase on business income of $20,752 ($7,837)
The average return with business income that is facing a tax increase would see a tax increase on business income of $29,595 ($10,780)
The total average tax rate on business income would increase from 23.7% (27.9%) to 29.5% (29.5%), assuming business income is the last dollar of income earned