Boehner, RNC Revive Wildly Misleading Claim About Taxes & Small Businesses

July 28, 2010 4:45 pm ET — Alan Pyke

John Boehner (R-OH)

Yesterday, House Minority Leader John Boehner (R-OH) attacked President Obama's plan to extend tax cuts for 98% of Americans — and allow the Bush tax cuts for the rich to expire as scheduled — as a "sucker punch" aimed at small businesses. In fact, the proposal would only raise taxes on the roughly 3% of small business owners that make over $250,000 per year and file as individuals (instead of as businesses). Boehner's "Leader Alert" attempts a preemptive strike on this fact by screaming in all-caps, "DON'T BE FOOLED BY DEMS' RED HERRING." But it is the Minority Leader who is guilty of distortion here.

To support the "red herring" charge, Boehner paraphrases a Joint Committee on Taxation finding that "half of small business income will face higher taxes under the Democrats' plan." That sentence makes it sound like the Obama tax proposals would raise taxes on half the small businesses in the country. And that's exactly what the RNC accused the Administration of doing today:

The latest Obama economic plan regarding tax cuts will cause strife for small businesses, which will face higher taxes because of it. According to the Joint Committee on Taxation, more than half of small businesses will be affected in this way.

But "half of small business income" and "half of small businesses" are not the same thing. The actual JCT report Boehner and the RNC cite explains why this is misleading:

The staff of the Joint Committee on Taxation estimates that in 2011 just under 750,000 taxpayers with net positive business income (three 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 50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent. These figures for net positive business income do not imply that all of the income is from entities that might be considered "small." For example, in 2005, 12,862 S corporations and 6,658 partnerships had receipts of more than $50 million.

Just when it seems like it's about to get hopelessly wonky, is on hand to lay this stuff to rest in plain English — because it's the same line Republicans have been using for years to justify cutting taxes for the wealthiest sliver of America. From last March:

[O]nly 27 percent of all upper-income tax filers report business income that accounts for more than half of their wages. It's likely that a small-business owner would make most of his or her income from the small business... In the end, it's unclear exactly what percentage of these top earners are truly small businesses. What is clear, however, is that we're not talking about all that many small businesses in the first place. The vast majority of individuals who report business income or losses are not making upwards of $200,000 a year. In fact, only 2 percent of all those reporting business income in 2009 will earn enough to fall in the top two brackets. As we explained back when Obama's tax plan was attacked on the campaign trail, the overwhelming majority of these mom-and-pop shops we hear about would not see their taxes go up under Obama's proposal.

It would be shocking if the Obama Administration planned a tax hike for half the nation's small businesses in the midst of a recession. That's why Republicans and their ideological brethren have used this attack again, and again, and again.

Still, no matter how much they say it, they aren't going to prove it — because it's not accurate.