Right-wing media reacted to President Obama's proposal to lower the corporate tax rate by pushing the repeatedly debunked claim that a majority of small businesses pay the top individual income tax rate. In fact, only a small fraction of small businesses pay this rate, and Obama's plan includes other incentives to help them.
Obama Proposes Corporate Tax Reform
Obama: "I'm Willing To Work With Republicans On Reforming Our Corporate Tax Code." In a July 30 speech in Chattanooga, Tennessee, Obama proposed simplifying taxes for large corporations and small businesses through corporate tax reform and use the revenue generated to lower the corporate tax rate and spend on infrastructure:
THE PRESIDENT: I don't want to go through the same old arguments where I propose an idea and the Republicans just say, no, because it's my idea. (Applause.) So I'm going to try offering something that serious people in both parties should be able to support: a deal that simplifies the tax code for our businesses and creates good jobs with good wages for middle-class folks who work at those businesses.
Right now, everybody knows this -- our tax code is so riddled with loopholes and special interest tax breaks that a lot of companies who are doing the right thing and investing in America pay 35 percent in their taxes; corporations who have got fancy accountants and stash their money overseas, they pay little or nothing in taxes. That's not fair, and it's not good for the economy here.
So I'm willing to simplify our tax code -- closes those loopholes, ends incentives to ship jobs overseas, lowers the rate for businesses that are creating jobs right here in America, provides tax incentives for manufacturers that bring jobs home to the United States. Let's simplify taxes for small business owners, give them incentives to invest so they can spend less time filling out complicated forms, more time expanding and hiring.
I'm willing to do all that that should help businesses and help them grow. But if we're going to give businesses a better deal, then we're also going to have to give workers a better deal, too. (Applause.) I want to use some of the money that we save by closing these loopholes to create more good construction jobs with infrastructure initiatives that I already talked about. We can build a broader network of high-tech manufacturing hubs that leaders from both parties can support. We can help our community colleges arm our workers with the skills that a global economy demands. All these things would benefit the middle class right now and benefit our economy in the years to come. [The White House, Office of the Press Secretary, 7/30/13]
Right-Wing Media Respond With Zombie Lie That Most Small Businesses Pay The Highest Individual Tax Rate
Fox & Friends: Obama Tax Reform Proposal Would Tax Small Businesses At 40 Percent Rate. Fox & Friends co-host Steve Doocy and guest co-host Alisyn Camerota claimed that Obama's tax reform proposal would not help small businesses. Fox aired the following on-screen text during the segment that suggested Obama wants to tax small businesses at 40 percent:
[Fox News, Fox & Friends, 7/31/12]
Wall Street Journal: Obama Raised Taxes On Most Small Business Owners When Income Tax Rate Increased For Top Two Brackets In January. A Wall Street Journal editorial pushed the zombie lie that many small businesses are taxed at the top individual rates, writing that "[m]ost small business owners file under rules for individuals," and noting that tax rate was increased this year:
Even for businesses that might find the proposal intriguing, the simplification in Mr. Obama's plan seems to apply mainly to those that file under the corporate tax system. Most small business owners file under the rules for individuals, which are not being simplified under this plan and whose tax rates Mr. Obama raised substantially in January. Cutting corporate rates without doing so for small businesses will merely increase the opportunities for tax arbitrage. [The Wall Street Journal, 7/30/13]
Drudge Report Claimed Obama Wants A 40 Percent Tax Rate For Small Business. The Drudge Report hyped a Weekly Standard blog post that claimed Obama's proposal to lower the corporate tax rate would still keep taxes high for small businesses. Drudge Report's link to the blog claimed that under Obama's proposal, the tax rate paid by small businesses would be 40 percent:
[Drudge Report, 7/30/13]
But Only A Tiny Fraction Of Small Businesses Pay The Top Income Tax Rates
Joint Committee On Taxation: 3.5 Percent Of Small Business Taxpayers Would Have "Marginal Rates Of 36 Or 39.6 Percent." A memorandum from the Joint Committee on Taxation, a congressional panel that analyzes tax proposals, projected that the 2013 increase to the two top income tax rates of 39.6 and 36 percent would only affect 3.5 percent of taxpayers that report business income. From the Joint Committee On Taxation:
The staff of the Joint Committee on Taxation estimates that in 2013 approximately 940,000 taxpayers with net positive business income (3.5 percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the president's proposal, and that 53 percent of the approximately $1.3 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent. [Joint Committee On Taxation, 6/18/12]
Economic Policy Institute: Only A Small Percentage Of Businesses Affected By Changes To Top Marginal Tax Rate. An Economic Policy Institute report on a plan to increase the two top marginal income tax rate found that only 3.6 percent of all small businesses were projected to earn enough income in 2011 to pay the top two individual tax rates of 39.6 and 36 percent. Only about 10 percent of small businesses were projected to earn enough income to be taxed at or above 28 percent, the rate Obama has now proposed to lower corporate taxes to:
[Economic Policy Institute, 12/13/12]
And Most Of These Businesses Aren't Necessarily "Small"
CBPP: Much "Business Income" Does Not Go To "What Most Americans Think Of When They Hear The Term 'Small Business.' " In an August 3, 2010, report on the effects of an extension of the Bush-era tax cuts for high-income earners, the Center on Budget and Policy Priorities stated:
While conceding that this would benefit only a tiny share of people with business income, some proponents of extending the high-income tax cuts argue that Congress should extend the tax cuts anyway because this relatively small group of people receives a large proportion of the nation's business income. While true, this fact reflects the reality that large amounts of "business income" go to concerns like large corporate law practices, accounting firms, and wealthy people who invest in financial and real estate partnerships. These are not what most Americans think of when they hear the term "small business." [Center on Budget and Policy Priorities, 8/3/10]
Tax Foundation Economist: "Nobody Can Agree What A Small Business Is." In a Reuters article detailing a 2012 Obama tax proposal, economist Will McBride at the conservative-leaning Tax Foundation highlighted the ambiguity regarding what is or isn't a small business while discussing the proposed changes:
"Nobody can agree what a small business is," said Will McBride, an economist at the conservative-leaning Tax Foundation, which backs lower taxes for all business.
Nearly every Republican lawmaker who blasted Obama's pitch used the term "small business" to brand it a disaster.
"Small businesses who are struggling to make payroll and working families who have tightened their belts to meet their budgets cannot afford to be hit with a massive tax increase come January," Republican House Majority Leader Eric Cantor said.
Democrats say that line of attack is misleading, pointing out that 97 percent of small businesses would not be hit, according to nonpartisan congressional estimates.
Also, mega law firms and hedge funds are part of that category - not exactly sympathetic figures for Republicans looking to portray Obama as a job killer ahead of the November 6 election. [Reuters, 7/9/12]
Former Bush Economist: It's A "Fallacy" To Claim That All "Small Businesses" Potentially Affected By A Raising Of The Top Marginal Income Tax Rate Are Small. A September 17, 2010, Washington Post article reported that "Alan Viard, an economist in the Bush White House who is now at the American Enterprise Institute, agreed that many firms represented in the top tax brackets are hardly small." From the Post:
Alan Viard, an economist in the Bush White House who is now at the American Enterprise Institute, agreed that many firms represented in the top tax brackets are hardly small. Economically, that doesn't matter, he said: Obama would still be raising taxes on a significant source of jobs and economic activity.
Politically, however, it's a very different matter to raise taxes on a Wall Street hedge fund than it is to tax your neighborhood dry cleaner. Which is why Republicans continually define pass-through entities of all sizes as small businesses, a position Viard called a "fallacy."
"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," Viard said. "And that's true. They're very large." [The Washington Post, 9/17/10]
White House Proposal To Reduce Corporate Tax Rate Includes Provisions To Help Small Businesses
White House: Obama Proposes To Help Small Businesses In Corporate Tax Reform Plan. A White House fact sheet about Obama's corporate tax rate proposal detailed how the plan would help small businesses:
Simplifying Tax Filing and Increasing Incentives to Invest for Small Businesses: President Obama believes tax reform should make tax filing simpler for small businesses. As part of his framework, he has proposed to allow businesses to expense up to $1 million in investments, providing them with an incentive to invest in new plants and equipment and removing a source of complexity in the tax code. [The White House, Office of the Press Secretary, 7/30/13]
Wall Street Journal: Obama Tax Reform Proposal Aims To Get Small Businesses To File As Corporations, With A Lower Tax Rate. The Wall Street Journal reported that aside from allowing small businesses to expense up to $1 million in investments, Obama's tax proposal would encourage small businesses to structure themselves as corporations and enjoy a lower tax rate if they're one of the few that fall into the top two income tax brackets:
The White House plan wouldn't push to lower the individual income-tax rates paid by thousands of businesses, but it would create some tax benefits for these entities. As an example, administration aides said, Mr. Obama has proposed allowing businesses, including small businesses, to expense up to $1 million in investments, a change that would provide certainty in an area where limits have changed frequently.
In addition, the broad design of the plan is aimed at eliminating the high tax rate that discourages many small businesses from structuring themselves as corporations in the first place. [The Wall Street Journal, 7/31/13]
For more on the right-wing media's small business zombie lie, click here.