During an interview with Fox News’ Neil Cavuto yesterday, Karl Rove derided Sen. Barack Obama’s (D-IL) plan to return the top two federal income tax brackets to the levels at which they were under President Clinton. Rove claimed such action would “devastate” small businesses.
To back up his assertion, Rove reeled off a long string of numbers – including “in the top 1 percent, 73 percent of the filers are small business people. 663,000 out of 912,000 filers in the top 1 percent are small business people” – to suggest that Obama would tax a huge percentage of small businesses. Watch it:
Rove is using an intimidating slew of numbers to spread falsehood. First, only 1.9 percent of small businesses file in the top two federal income tax brackets. That leaves 98.1 percent of small businesses unaffected by Obama’s suggested rate change.
Furthermore, because of the Treasury Department’s broad definition of small business, “many of the roughly 650,000 filers with small-business income who face one of the top two tax rates are merely passive investors who have nothing to do with running the business.” As the Center on Budget Policy and Priorities found:
About 35 percent of “small-business owners” with incomes above $200,000, and about 58 percent of “small-business owners” with incomes over $1 million, received some or all of their business income in the form of passive investments. The Treasury definition also counts as “small-business income” the fees that CEOs are paid for sitting on corporate boards.
Under the Treasury definition, “the $84 of income President Bush received in 2001 from a passive investment in an oil and gas company made him a ‘small-business owner.’” It’s hard to see how taxing this income would devastate actual small businesses.