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Letter: Clearing up confusion on tax rate increases

Published: Tuesday, Dec. 11 2012 12:00 a.m. MST

President Barack Obama smiles as he is introduced by Jim McNerney, chief executive officer of The Boeing Company, before speaking about the fiscal cliff during an address before the Business Roundtable, an association of chief executive officers, Wednesday, Dec. 5,2012, in Washington. (AP Photo/Charles Dharapak)

Charles Dharapak, AP

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There is a good deal of confusion about the tax rate increases President Obama is proposing, including a widespread belief that these rate increases would devastate small businesses. So let's clarify a few facts.

First, the rate increases won't affect all income. For a married couple filing jointly, the rate would increase from 33 to 36 percent on income between $241,900 and $390,050. The rate on the top bracket would increase from 35 to 39.6 percent, but only on income over $390,050.

Second, these rates apply not to total income, but to taxable income (after all 401k contributions, credits, deductions and exemptions are subtracted out).

In essence, for a small business with profit in 2013 of $450,000, if the owner puts 10 percent in a tax-sheltered 401k, earns $5,000 in interest, pays self-employment tax, receives a deduction for self-employed health insurance and has total itemized deductions and personal exemptions of $60,000, the proposed rate increases would cause this business owner's taxes to go up by $2,673, which is 0.8 percent of his taxable income and only 0.68 percent of his adjusted gross income.

He would have to earn well over $500,000 to pay any taxes at the 39.6 percent rate.

Roger Terry

Orem

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