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Study: Tax Increases Threaten Small Businesses, Economy

A 1.3 percent Smaller Economy and 710K Fewer Jobs Would Result

Washington, D.C. (July 17, 2012)—The Independent Community Bankers of America (ICBA) and a coalition of other organizations today released results of a study on the negative economic impact of proposals to raise tax rates on small businesses and investment income. The study by Drs. Robert Carroll and Gerald Prante of Ernst & Young found that raising tax rates on Americans earning more than $250,000 and raising the top rates on capital gains and dividends would lead to fewer jobs, lower wages, a smaller economy and less small business investment.

“This study shows that raising taxes next year will have a devastating impact on small businesses, including community banks,” ICBA President and CEO Cam Fine said. “Many community banks and other small businesses are organized as Subchapter S corporations, which would face a nearly 10 percent tax hike—limiting growth and threatening our nation’s economy.”

The proposed tax increase, scheduled to take effect on Jan. 1, would have a particularly negative impact on small businesses taxed at the individual income tax rate, which employ more than half of the private-sector workforce. These flow-through businesses, such as Subchapter S corporations, would see their top tax rate rise from 35 percent to 44.7 percent next year. The flow-through form is also important to the financial services sector as nearly one-third of all U.S. banks—more than 2,300 mostly community banks—are organized as Subchapter S corporations.

These stifling tax increases would have significant economic consequences by reducing investment in the United States by 2.4 percent, according to the study. It also would result in 710,000 fewer jobs, 1.8 percent lower wages and a 1.3 percent smaller economy.

For more information, visit www.icba.org.