The Small Business Lie

Marc Ambinder has an excellent rundown of the right's dishonest efforts to label Barack Obama's tax plans as a huge hit to small business owners:

The Republicans and John McCain in particular are trotting out a tiresome and thoroughly debunkable claim about Barack Obama's tax plans -- namely, that could hit as many as 23 million small businesses. The McCain campaign credulously cites the obviously self-interested Chamber of Commerce, which counts as a small business any entity or individual who reports any income under Schedule C of the federal income tax return or anyone who organizes a Subchapter S corporation. Hence: 23 million. As Factcheck.org says, that's misleading -- generously put. The real pool of small businesses with employees is around six million, and an estimate of the number of proprietorship paying into the top two income brackets is less than 700,000 -- a lot, but about 2.5% of 23 million.

The Bush campaign did this throughout 2004 and I believe also a few years before that when selling the initial tax cuts and it's just a simple, easily disproven lie. The sort of thing that would, one would think, lose a man his reputation for straight-talk. As far as these things go, it doesn't even really make sense as 23 million is incredibly large relative to the American population -- once you threw in the high-earners who aren't small business owners, and the small businesses that aren't organized as Schedule C or Subchapter S, and the people out of the workforce there'd be nary a waitress or construction worker or chain store manager or professional blogger in sight.

Comments

Another statistic for comparison purposes: the entire U.S. workforce is about 150mm people. If 23mm were the correct statistic, about 1 out of every 6 American workers would be the owner of a small business.

Posted by alkali | July 15, 2008 12:47 PM

How do you tell when a Republican is lying? Their lips are moving.

Posted by LFC | July 15, 2008 1:23 PM

Universal, single payer health insurance would lead to a renaissance of small business like nothing ever seen. If the chamber of commerce really cares about genuine small business, as opposed to rich people creating sham corporations for the purpose of tax-deducting their Hummers, PCs and restaurant meals, then the chamber should STFU about taxes and line up behind Barack Obama.

Posted by Aatos | July 15, 2008 1:24 PM

and an estimate of the number of proprietorship paying into the top two income brackets is less than 700,000 -- a lot, but about 2.5% of 23 million.

I'd be willing to bet that about 90% of that 2.5% are doctors.

Posted by Brautigan | July 15, 2008 1:27 PM

I have a friend who runs a small business. When he was getting ready to start his small business, he was a confirmed quasi-libertarian Republican: "I really want to start my business, but I'm going to be so constrained by government regulations and so bogged down in paperwork, I won't have the ability to run my business -- and, anyway, even if I make money at it, taxes will kill me". Now that he actually has a business running, he realizes that as a smart, organized person, the paperwork ain't so bad nor are the regulations so burdonsome ... what's holding him back is not the tax burdons but being unable to hire people until he can afford to pay them both a good salary and benefits. So, now (c.f. Aatos) he's a liberal Democrat wanting universal health care, etc.!

Posted by DAS | July 15, 2008 1:35 PM

If 23mm were the correct statistic, about 1 out of every 6 American workers would be the owner of a small business.

Posted by alkali

Maybe they're very, very, very small businesses, so small that the owners themselves didn't notice them! Believe it -- or NOT!

Posted by El Cid | July 15, 2008 2:01 PM

The sort of thing that would, one would think, lose a man his reputation for straight-talk.

Are you QUESTIONING John McCain's INTEGRITY?!?!?!?!?!?!?

Posted by Notorious P.A.T. | July 15, 2008 2:12 PM

American political discourse is as full of deliberate lying as it is rank with stupidity. Republicans appear to love to lie. The Dems lie too but, in character, often feel the pain and shame of it. The GOP just lies and laughs, and counts the votes.

Posted by LiarsWatch | July 15, 2008 3:04 PM

Why does no one just out and say that so-and-so is a liar? I mean, not just in this case - Bush in '04, etc.

I would hope it's because politicians want to avoid the slippery-slope of doing so; otherwise, we'd be calling one another liars every minute and get outraged about it every minute.

Posted by socctty | July 15, 2008 3:09 PM

The sort of thing that would, one would think, lose a man his reputation for straight-talk.

MY GOD HOW DARE YOU!!!! THE MAN WAS SHOT DOWN -- SHOT DOWN, FOR GOD'S SAKES....!!!!!

Posted by Stefan | July 15, 2008 4:41 PM

What do you mean, "a business not organized as a Schedule C?" Schedule C isn't a form of organization--it's the tax form for self-employment income. So when I was a construction worker, paid as a contractor rather than an employee, that income went on Schedule C. And yes, it was a business--altho it didn't have any other employees. (And didn't make much money, either.)

Posted by SamChevre | July 15, 2008 5:21 PM

The even bigger related lie is that this massive tax increase on all these small businesses will hamper job creation.

I don't know how you do things down in the US, but in Canada, employers (even small businesses!) get to deduct wages and benefits from taxable income. So it should hardly matter what income tax rate you pay on taxable income when it comes to how much you are willing to spend on employees.

Posted by McKingford | July 15, 2008 5:37 PM

If 23mm were the correct statistic, about 1 out of every 6 American workers would be the owner of a small business.

What, selling your grandma's Hummell figurines on eBay isn't a business?

Posted by Tom | July 15, 2008 6:02 PM

According to the SMA - Census in 2005 there were
about 7.5 million establishments in the US.

http://www.census.gov/csd/susb/susbdyn.htm

Some 3.7 million were establishments with 0-4 employees . These included doctors, lawyers, and other partnerships as well as the independent contractors referred to above.

Some 2.6 million were in establishments, firms with some 5 to 499 employees.

Some 1.1 million were in firms with over 500 employees. For the most part these are public firms run by professional managers rather than firms run by individual owners.

So if maybe one-third of the firms with 0-4 employees are really the type of small businesses constantly referred to in political comments and all the firms with 5-4999 employees are genuine small businesses, we estimate that there are about 4 million small businesses owners of the type referred to. This number is much smaller than the 23 million number cited.

Posted by spencer | July 15, 2008 6:12 PM

Could someone explain the rationale for lumping small businesses into the personal income tax rate?

Ever since Bush said repealing the tax cuts would raise taxes on small businesses I've wondered why some politician doesn't propose creating a separate category.

Posted by jeff | July 15, 2008 8:00 PM

"In David Brooks’ 1999 McCain-lauding essay, “Politics and Patriotism: From Teddy Roosevelt to John McCain,” Brooks writes that McCain and others worry “that we have become a nation obsessed with risk avoidance and safety.” The cure? To follow Roosevelt who “saw foreign-policy activism and patriotism as remedies for cultural threats he perceived at home.”"

My father's father's father - a handsome, charismatic 6'2 minister, lifelong Republican (even after Hoover), and 100% German-American - told my father stories about TR's anti-German demagogy during WW1 (after the man was near-certifiably crazy).

I liked the Wind and the Lion as much as anyone (in fact I watched a few minutes of it this morning) and Roosevelt's handling of the San Francisco earthquake (as well as a number of other things [Taft's 180 on the forestry service was appalling]) was excellent but you hope that if (when?) the McCain fellow becomes president his age will have tempered the angry, irrational side.

Posted by Linus | July 15, 2008 10:01 PM

Oops. Wrong thread.

(That's a check minus Linus.)

I'll make it up with extra credit.

Posted by Linus | July 15, 2008 10:25 PM

So, only 700,000 small businesses will be negatively affected by Obama's tax policy? While that's a more comforting number than 23M, it's not exactly a selling point for his plan.

Posted by mike | July 16, 2008 9:24 AM