As the fight over the expiring Bush tax cuts drags on, Democrats and Republicans are vying for public support by citing figures about business tax rates. According to President Obama and the Democrats, 97 percent of small businesses will see their tax rates remain the same. Republican counter that the remaining three percent of small businesses — about 750,000 of them — constitute half of all small-business income. There’s only one way both of those statements can be true: Many of those 750,000 small businesses aren’t small at all. Some, like Bechtel Corporation, are positively enormous.
The Democratic and Republican figures come from the non-partisan Joint Committee on Taxation. But numerous think tanks and government organizations have examined the data and come to similar conclusions: First, that letting the Bush tax cuts on the top two brackets of “small-business” income would impact a tiny percentage of those businesses; and second, that many of the “small businesses” that would be impacted are actually giant companies — which explains why such a tiny fraction of them can account for half of small business income.
According to the Washington Post, which obtained its information from House Democrats, some of the “small businesses” that could see a small increase in their marginal taxes are household names like accounting giant PricewaterhouseCoopers and Tribune Corp. — privately-owned behemoths whose owners and managers dodge corporate taxes by reporting profits on their income tax returns.
It’s those receipts that allow Republicans to claim, based on a recent report by JCT, that Obama’s plan will ensnare 50 percent of all “small business income. JCT addressed this in the same report. “These figures for net positive business income do not imply that all of the income is from entities that might be considered ‘small.'”
Over the last three decades, the numbers of these types of businesses — both small, large, and enormous — has exploded.
(Source: Joint Committee on Taxation)
That creates a great deal of distortion when the biggest of the firms are Bechtel-sized. In 2005, partnerships with over $50,000,000 in receipts accounted for two-thirds of all partnership receipts, even though they accounted for only 0.2 percent of all tax returns from partnerships, according to data from a 2008 report from JCT.
It’s more than a stretch, then, to call these businesses “small,” as Republicans do. Even conservative economists call it a stretch. Alan Viard — a member of George W. Bush’s Council of Economic Advisers — told the Post: “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…. They’re very large.”