Effort to Help Veterans Will Kill Jobs

Published June 1, 2008

Shortly before Memorial Day the U.S. House of Representatives voted 256-166 to boost military veterans’ education benefits–in a way that would hurt veterans’ chances of finding and keeping a job.

Higher unemployment would be one likely result of the so-called “Patriot Tax” bill, which would impose a 0.47 percent income tax surcharge on taxpayers with adjusted gross incomes of $500,000 or more ($1 million for married couples filing joint tax returns). Congress’s Joint Tax Committee estimates the tax increase would raise about $52 billion over 10 years.

That averages out to more than $5 billion a year taken out of the pockets of higher-income taxpayers, most of whom have long been the jobs-creation engine in this country.

Twenty-seven million small businesses operate as Subchapter S corporations, sole proprietorships, partnerships, or other “flow-through” entities. They pay taxes on the individual 1040 income tax form.

Americans for Tax Reform has analyzed IRS figures and determined 87 percent of tax returns with the surtax’s level of adjusted gross income have business income from sole proprietorships, partnerships, or Subchapter S corporations.

Most small businesses, it’s true, do not hit the surtax threshold. According to the IRS Statistics of Income Division, the surtax would affect about 400,000 households. The Urban Institute-Brookings Institution Tax Policy Center estimates about 1.2 percent of all tax units with business income have incomes high enough for them to owe the surcharge.

Admittedly, this is a small fraction of the total number. But Joint Committee on Taxation data show that while 82 percent of all S corporations, partnerships, and sole proprietorships had gross receipts of less than $100,000 in 2003, nearly 60 percent of these businesses’ total business receipts went to the relative handful of businesses that brought in more than $10 million.

Most S corporations, partnerships, and sole proprietorships with gross receipts of less than $100,000 have few or no employees other than the tax filers themselves. Those few with $10 million or more are precisely the ones most likely to hire workers. They will be the ones to pay the price for these higher veterans’ education benefits.

The bill now resides in the Senate, which has not yet voted.

The federal budget has hit $3 trillion. Billions of dollars of spending “earmarks,” vetted by no one, litter Washington, and corporate welfare in energy, transportation, agriculture, and other bills continues to spill from the U.S. Treasury to favored industries.

Surely amid all these billions of dollars of waste and corporate handouts, money could be found to boost military veterans’ education benefits.

Steve Stanek ([email protected]) is a research fellow of The Heartland Institute and managing editor of Budget & Tax News.