A Small Business

Now that President Obama has officially declared he wants to let the tax rates for those making more than $250,000 per year go back up to pre-2001 levels the flood of faux facts has begun. Chief among them is this one amply explained in a New York Post editorial on Thursday:

“Many of the folks who report $250,000 or more in income are hardly fat cats: They’re hard-working small-business owners who pay taxes on their revenues via their personal income-tax returns. In fact, in the top two income-tax brackets – the ones Obama proposes to squeeze most heavily – a full 80 percent of filers report small-business income.”

Let’s start with that $250K number — and remind everyone that is taxable income meaning what you make after deductions like mortgages, real estate taxes, charitable contributions, health costs, etc. In the case of businesses deductions include expenses like advertising, rent, and supplies.

So are “many” of the folks who reported more than a quarter million in taxable income really “hard-working small-business owners”? No. Of the roughly 150 million people who filed tax forms last year 4.85 million made $250K or more in taxable income. Of those 4.85 million about 625,000 could be considered “small business owners” (as we shall see shortly) which amounts to about 13%. “Many”? Hardly.

Now about the second claim “in the top two income-tax brackets…a full 80 percent of filers report small-business income.” That is accurate but note the Post didn’t say 80 percent of these folks are small business owners. Filing some small business income is obviously very common in these tax brackets but what does it mean? Anything from rental income from an apartment to selling a few hundred bucks were of stuff on eBay every year.

So here’s what’s relevant: As we just noted, last year there were 150 million people who filed tax forms and of those 624,370 reported earning more than $250,000 in taxable income and earning more than 50% of that income from small business activity.

So the number of “small businesses” making more than $250K in taxable income whose taxes would go up under the Obama budget is certainly no more than 624,370 and probably a bit less but let’s keep than number for the sake of argument. What percentage of all the small businesses in America filing personal income taxes does this represent? That’s the bottom line in this argument and the key relevant number everyone should focus on: At the very most 22% of small businesses will pay higher taxes under Obama’s budget.

That’s more than the Administration talks about a less than opponents claim. It is, nonetheless, what the data shows to be true. Certainly there’s an honest debate to be had about whether it’s a good idea to raise taxes on 22% of America’s small business owners this but let’s have it based on facts, not fantasy numbers concocted by partisan flamethrowers. Stick to the facts: 22% of small businesses would pay higher taxes under Obama’s plan.

(If you want to dive into the numbers, grab your calculator and Advils and go to the Tax Policy Center‘s website. The relevant doc to start is here. Have fun!)

One other thing.

Critics complain of Obama’s “Fuzzy math” in citing these bogus numbers but they’ve actually missed some real fuzzy math on the President’s part as pointed out in Thursday’s Washington Post: “And though Obama told Congress on Tuesday that his budget team has “already identified $2 trillion in savings” to help tame record budget deficits, about half of those “savings” are actually tax increases, administration officials said. A big chunk of the rest of the savings comes from measuring Obama’s plans against an unrealistic scenario in which the Iraq war continues to suck up $170 billion a year forever.

That is not the kind of change Obama promised and it is a mistake for him to use the same kind of budget double-talk that George W. Bush became so infamous for. The danger for Obama is how easily one bad deed can poison so many good deeds (i.e. honestly accounting for revenues and expenses for all 10 years of a 10 year budget). Obama should play it straight and demand his opponents (and the lapdog lazy media) do the same.