Much of the talk about the fairness of the tax code and the extension of the Bush tax cuts is just thinly veiled class warfare. By focusing on billionaires and millionaires we lose sight of the far more mundane reality.

$380,000 in income puts you in the top 1% of income earners. This could be a small business owner who is PAID $130,000 and shows $250,000 in Sub S earnings on his business, which is often NOT received as cash wages. The new tax increase just passed by the House has raised his taxes and probably the taxes of nearly 50% of small business owners.    In a time of sluggish growth and very stubborn unemployment this is a very foolish idea.

The tax increase alone is not nearly as bad as the accumulation of regulations, taxes and uncertainty that has most businesses sitting on their cash rather than deploying it.  It is like investing in a CD at a bank without knowing what the interest rate will be, or even being certain it will be a positive number.

The focus on “fair” is irrelevant.  The focus should be on creating new jobs and getting businesses comfortable enough to invest the money they have. Nobody will invest without  the expectation of some return on their money. This tax increase is just one more weight on the decision scale against economic growth.

It is hard to conceive of the thinking of the expiring Democrat majority that just got routed at the recent election, and that has lost both Ted Kennedy’s and Barak Obama’s seat to Republicans.  Two years ago it seemed the Republican party was dead; now they actually outnumber Democrats for the first time in decades.  Yet they still seem clueless as the cause of this stunning reversal.

If this bill passes the Senate then the largest job creating sector in the economy will be handicapped.  If it doesn’t pass then all the Bush tax cuts expire and nearly everyone’s taxes go up.  Perhaps they are trying to force the Republicans to go on record either voting against the tax cuts for the majority or for the tax cuts for the “rich”.  The voters are not as stupid as they think.

Meanwhile with less than 30 days till year end, investors will be cashing in their capital gains this year and trying to recognize income in 2010, before the tax increase takes effect.  Expenses, including charitable donations will be forestalled into 2011 when the after tax value is greater.  Taxes do affect behavior.

But that may be just one more lesson they are unable or unwilling to learn.