Myths of small business ownership

The Times does some, um, actual reporting and finds that the notion that returning to Clinton era marginal tax rates for those earning more than $250K will hurt small business owners is bullshit.

Mr. Obama wants to extend the cuts for most taxpayers. But he proposes eliminating them for the top 2 percent of wage earners, whose taxes would rise. Opponents of the plan warn that a tax increase would batter hundreds of thousands of small businesses — from Silicon Valley start-ups to mom-and-pop convenience stores — and prevent them from creating the jobs that might lift the sagging economy.

“It’s a body blow to the small-business community,” said Grover Norquist, president of the conservative advocacy group Americans for Tax Reform.

Despite that emotional appeal, Internal Revenue Service statistics indicate that only 3 percent of small businesses would be subject to the higher tax, and many studies of previous tax increases suggest that it would have minimal impact on hiring.

According to the Joint Committee on Taxation, 97 percent of all businesses owners do not earn enough to be subject to the higher rates, which would be levied on income of over $200,000 for individuals and $250,000 for families.

Even among the 750,000 businesses that would be subjected to the higher rates in 2011, many are sole proprietors — a classification so amorphous it can include everyone from corporate executives who earn income on rental property to entertainers, hedge fund managers and investment bankers. Because 80 percent of America’s 32 million businesses are sole proprietorships, 90 percent of the tax cut would be derived from businesses without employees.

Trade groups lobbying to extend the tax break for wealthy Americans argue that when hobbyists and home-based enterprises are removed from the equation, the total number of businesses affected is closer to 8 percent. Those companies are responsible for nearly half of all business revenue generated in the country, and according to the conservative American Enterprise Institute, would be less likely to invest or hire if subjected to higher rates.

But much of the research over the last two decades has found that increases in top tax rates can lead to an increase in the formation of small businesses, as wealthy individuals apparently begin start-ups to avail themselves of the more generous tax breaks offered to businesses.

“Higher taxes may lead individuals to seek self-employment because the opportunities for tax evasion and avoidance are greater,” according to a report released this month by the nonpartisan Congressional Research Service, which surveyed more than 20 studies on the effects of taxes on hiring.

So, we find that statistics show that most small business owners are not among the 2 percent of highest earners in this country, tax increases do not "kill jobs," and that wealthy individuals are more likely to start small businesses in the face of higher taxes.

That settles it, right? Statistics on one hand, but in the nature of traditional journalism, we must look at the other hand. And that is...Charles Grassley.

But Senator Charles E. Grassley, Republican of Iowa, warned that eliminating the tax cuts on top individuals would quash many businesses just as they started to grow.

“If you own a 100-worker metal fabrication plant, and your taxes go up 17 to 24 percent, you’ll likely stop hiring or lay off workers to compensate,” he said. “Small businesses create 70 percent of new jobs, so it’s disastrous for job creation to raise taxes on small businesses.”

Pulling such numbers directly out of his ass, the senator did not cite the study that supports that dire assertion.