The Net Investment Income Surtax: Is One of the Newest Medicare Taxes Negatively Affecting Investment Activity in Small Business?
Adams, Kyle Scott
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Adams, Kyle Scott
The Net Investment Income Surtax is an additional income tax that was primarily implemented in 2013 to raise funds for the Patient Protection and Affordable Care Act of 2010. It accomplishes this by charging an additional 3.8% tax either an individual's Net Investment Income or on their Modified Adjusted Gross Income less a threshold deduction. However, this surtax may have the unintentional side effect of negatively impacting investment activity in small business, specifically in regards to Initial Public Offerings held by businesses looking to expand, and this study looks to identify any correlation between the Net Investment Income Surtax and annual IPOs. In this study, the key economic variables that a business must consider before launching a successful IPO have been isolated and examined. This is because these variables must be favorable before a business will decide to launch their IPO. With these variables, this study has created a multiple regression model that tracks the number of IPOs each year from 1985 to 2012, from which a regression formula was created. The regression formula was then used to isolate the effect that the Net Investment Income Surtax had on the number ofIPOs launched after its initiation in 2013. 11 iii The result of this study was that the NII surtax does not have a significant influence, negative or positive, over small business investment activity. Instead, the results suggest that favorable market conditions are much more important to businesses looking to have an IPO. That being said, this does not necessarily mean that the NII surtax will never significantly affect small business investment activity, so we must remain vigilant towards it and other taxes and economic impositions that target specific demographics.