The Impact of Higher Tax Rates on Small Business Hiring

In recent years the debate over how to reduce our nation’s deficit had become very heated with conservatives and liberals seemingly growing further apart.  The political right aims to reduce government spending while their counterparts on the left insist on raising tax revenues by increasing taxes on higher income individuals.  It’s easy for those not aware of the statistics to get caught up in the media hoopla and be confused as to how to steer the country back to a balanced budget and manageable debt levels.

The IRS released figures for the 2008 tax year which showed that 58% of the population and 48% of households had zero federal income tax liability.  Basically half of the country doesn’t contribute any income tax to the federal coffers.  It is most likely these people who support Democratic Party leaders who want the tax paying half of the population to pay even more.  After all, if you are not paying any taxes, why not jack up the rates?  It won’t affect the lower half the thinking goes.  The reality however is that tax increases on higher income earners is what leads to such a high percentage of the population remaining jobless or at low income levels.  It has been proven time and again that high taxes cause small businesses to shed jobs which turns creates detrimental ripple effects throughout the economy.

With luck the next election will bring real tax reform.  Lower tax rates will lead to a higher percentage of people paying taxes and should increase the revenues collected by the IRS.  Pair this with entitlement and defense spending cuts and our country could soon be back on its track to long term prosperity.