Linda McMahon, the Republican senate nominee in Connecticut, is selling herself as the consummate business woman, thanks to her years as an executive with World Wrestling Entertainment. But if her appearance last night on CNBC is any indication, McMahon is a little unclear about how much money the typical small business owner is earning.
CNBC’s supply-side devotee Larry Kudlow asked McMahon for her position on allowing the Bush tax cuts for the wealthiest two percent of Americans to expire, and McMahon used the standard Republican argument that permitting the expiration would cause a tax increase on small businesses:
The fallacy Larry, and you know this as well as anyone, it’s not just that top marginal tax rate that’s going to affect the wealthy, it’s going to affect small businesses. I’ve started as a Subchapter S corporation, and so when you increase that top marginal tax rate, if it goes from 35 to 39.6 percent, you know, that’s going to be a big dig for small businesses. And as I talk to small businesses all over the state of Connecticut, they’re telling me, ‘look, I’m not going to grow. I’m not going to go over that level. I’ll lay somebody off, I won’t take that next job, I can’t work any harder, and I’m just not going to work any more for the government.’
Florida’s senate candidate Marco Rubio said the same thing last week — calling the very phrase “Bush tax cuts for the rich” a “misnomer” — but it hasn’t gotten any more true in the interim. The fact remains that fewer than two percent of small businesses and less than three percent of people with any business income whatsoever will see a tax increase if the top two income tax brackets reset to the 2001 level, as President Obama has proposed.
McMahon tried to make the case that S-corporations — which don’t pay the corporate income tax, but pass their earnings through to owners who then file the income on their personal returns — would be hammered by the tax increase. But IRS data shows that those who both claim S-corp income on their personal returns and would be affected by the tax cuts expiring “come disproportionately from the ranks of the super-rich.” 89 percent of people claiming $10 million or more on their personal income tax returns have some S-corp. income.
According to the latest survey of small businesses by the National Federation of Independent Business, which is totally in the tank for extending the Bush tax cuts for the rich, nearly half of small businesses are not hiring due to economic conditions or sales prospects (so lack of customers), while just twelve percent cite “political conditions.” And handing more than $700 billion to the rich is not going to improve those sales prospects at all.
McMahon herself, who holds personal assets worth anywhere from $156 million to $400 million, would face higher tax rates if the tax cuts for the rich expire. The same can’t be said for the vast majority of small business owners.