One of the key justifications that Republicans use to support extending the Bush tax cuts for the richest two percent of Americans (at a ten-year cost of $830 billion) is that allowing those particular tax breaks to expire will disproportionately harm small business and job creation. “This is about stopping a job-killing tax hike on small businesses during tough economic times,” argued Sen. Orrin Hatch (R-UT).
This is a phony argument, as just three percent of people with income from a business large or small would be affected if the Bush tax cuts for the rich expire. Republicans eventually conceded this point, only to begin disingenuously arguing that half of small business income would be affected by the tax increase. Today, CNBC host Joe Kernen helped Rep. Paul Ryan (R-WI) spread this falsehood, and threw in the incorrect Republican assumption that extending the Bush tax cuts for the rich would spur job creation:
KERNEN: They say it every time, because only two percent of small businesses fall into that. So they say that and they know through their teeth, that they know they’re dissembling…Half the income of small businesses is hit by it!
RYAN: Drive to any town in Wisconsin, go to the outskirts and you’ll see an industrial park. And in that industrial park, nine times out of ten it’s going to be a sub-S corporations that has 50 to 250 employees, who are all in this category of making $250,000 or higher. They’re pass-through entities, they’re partnerships, sub-S’s, they’re the people who are creating the jobs. That’s where the economic engine rests, and that’s who’s getting the tax increases. [...]
KERNEN: But what I don’t understand is if they want jobs, if they want to help the country, with its 10 percent unemployment, why do they dissemble?
First, Kernen is flat-out wrong that half of small business income would be affected by the expiration of the Bush tax cuts for the rich. The Congressional Joint Economic Committee has estimated that half of net business income would be affected, and that its figures “do not imply that all of the income is from entities that might be considered ‘small.’”
As The Wonk Room explained, a lot of these “small businesses” are simply large businesses that are organized as “pass-through” entities, which means they don’t pay the corporate income tax, but “pass-through” their profits to the owners, who then claim the profits on their personal income tax returns. These include the Bechtel Corporation, which is the fifth-largest privately owned company in the United States, posting gross revenue in 2008 of $31.4 billion; the Wall Street buyout firm Kohlberg, Kravis and Roberts, which has more than $54 billion in assets and 14 offices around the globe; as well as every partner in a law firm, every passive investor in an oil or gas venture, and anyone with a trust fund.
The GOP wants you to picture the local dry cleaners and hardware store as facing a crushing tax increase, but the fact remains that exceedingly few small businesses will be affected if the Bush tax cuts for the rich expire. And, contrary to Kernen’s assertion, such an extension is the least effective tax or spending step the government could take to boost the economy.