The Republicans would have you believe that letting the rich pay more in taxes is bad for business. Why? Because they say that most of those affected are small businesses. But is it true?
"The top 2 or 3 percent" of all small businesses would see their taxes go up under the Obama plan, Sen. Orrin Hatch (R-Utah) fumed this week. "That's 750,000 to 800,000 small businesses! That create most of the jobs in our society!"The thing is, some of those businesses are not particularly small. In fact, they're quite large.
How large, exactly, and which firms are affected?
Among the firms Republicans want to protect from new taxes, according to research by House Democrats: The management team at Wall Street buyout firm Kohlberg, Kravis and Roberts (KKR), which recently reported more than $54 billion in assets managed by 14 offices around the world. Auditing firm PricewaterhouseCoopers, a household name with operations in more than 150 countries. And the Tribune Corp., which owns the Chicago Tribune, the Los Angeles Times and the Baltimore Sun.KKR, PricewaterhouseCoopers and the Tribune, it turns out, are organized as "pass-through" entities - companies that typically avoid corporate taxes by reporting profits on the individual tax returns of their owners, managers or shareholders.
The vast majority of "pass-through" entities are, in fact, small businesses, often with one or two employees and very small profits. Next year, the nonpartisan Joint Committee on Taxation predicts that taxpayers will report about $1 trillion in income from pass-through entities. Only about 3 percent of them - about 750,000 taxpayers - will earn more than $250,000, the threshold at which Obama would raise tax rates. Those returns will account for about half of all pass-through business income, the JCT reported, meaning the tax hikes would strike a large segment of such activity.
So, 3% of these tax-paying entities, about 750,000 taxpayers, make up 50% of the income in this $1 trillion club. Got that? 3% makes up 50% of the taxes. Which means that by definition they must be large entities.
But don't take the Washington Post's word for it. Just zip over to the Center on Budget and Policy Priorities:
Only 1.9 percent of people with such income currently are in a tax bracket with a rate higher than 28 percent. As a result, the percentage of people with small business income who would be affected by proposals to increase the top two tax rates or limit the value of itemized deductions to 28 percent of deductable expenses would be extremely small.Or even better yet, listen to one of Bush's top economic advisers:
Alan Viard, an economist in the Bush White House who is now at the American Enterprise Institute, agreed that many firms represented in the top tax brackets are hardly small."How can it be that 3 percent of owners are accounting for 50 percent of small business income? Those firms they're owning can't be all that small," Viard said. "And that's true. They're very large."
So, can we just finally jettison this idea that letting Bush's tax cuts for the wealthy will endanger economic growth and affect small businesses? It's a ridiculous cover behind which the Republicans are trying to hide: they just want to hook up their wealthy base and don't care if it blows up the deficit.
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Tags: Bush tax cuts, small business, tax break, tax cuts
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