Democrats, GOP duel over small-business taxes

? Few small businesses would see a tax increase under President Barack Obama’s budget plan. But those companies in line for higher taxes employ the most workers and could be hit hard.

A debate that started with last fall’s campaign on whether those taxes might hurt an important engine of economic growth continues to rage, partly because arguments on both sides have merit.

Republicans have accused Obama of trying to raise taxes on small-business owners since he proposed a tax increase on the wealthiest Americans during the campaign. Not true, Obama replies. Only a few of the most successful small-business owners would pay more, he says.

Back and forth they go. Now that Obama has included the tax increases in his spending blueprint, the debate is unlikely to end soon. Both the House and Senate budget outlines that were debated this past week assume Obama’s tax increase will pass.

It is true that relatively few small-business owners would face tax increases. But those businesses — the ones that make the most money — are the most likely to employ 20 or more workers, according to data from the National Federation of Independent Business.

At the heart of the debate is Obama’s plan to raise the top two income tax brackets by allowing tax cuts enacted under former President George W. Bush to expire in 2011.

The top income tax rate — which for a couple filing jointly kicks in on income above $373,000 a year — would increase from 35 percent to 39.6 percent, the rate in place when Bill Clinton was president.

The second highest rate — on marginal income between $209,000 and $373,000 — would increase from 33 percent to 36 percent.

Millions of business owners, including many one-person operations, report business income on their individual tax returns. Obama says his plan would limit tax increases to individuals making more then $200,000 a year and couples making more than $250,000.