Political Correction

Sen. Hatch's So-Called Small Businesses Include Millionaire Athletes And Wall Street Firms

December 03, 2010 3:21 pm ET

Today, Sen. Orrin Hatch (R-UT) took to the floor of the Senate to criticize congressional Democrats for their handling of the pending expiration of the Bush-era tax cuts. Hatch claimed that he and his Republican colleagues "want to do more" than Democrats by extending tax cuts to earners in the highest income brackets. Hatch argued that "the so-called millionaires tax hike" was nothing of the sort, but instead a tax hike on hardworking small business owners. In reality, as Hatch's Republican colleague Lamar Alexander (R-TN) noted a few days ago, these so-called "small business owners" include multi-million dollar Wall Street firms as well as wealthy non-employer tax filers.

Hatch: "So-Called Millionaires Tax Hike ... Is A Hit On Small Businesses"

From a December 3 speech on the floor of the Senate (emphasis added):

HATCH: Many on the other side ascribe to Republicans a motive to take whatever action necessary solely to provide tax relief for high-income taxpayers. Now let's be clear, Senate Republicans and Democrats both want to prevent tax hikes on middle-income families. The only difference is Senate Republicans want to do more. On this side in this slow-growth environment, we don't want to raise taxes on anyone right now. Yesterday I discussed some of the reasons for preventing any tax hikes even preventing the so-called millionaires tax hike -- quote "millionaires" unquote tax hike -- it's a hit on small businesses on and we all know it. It's a hit on the after tax return - after tax rate of return on investment. This so-called -- quote -- "millionaires" - unquote -- tax hike will slow the flow of the lifeblood of business and business capital. Let's be clear, on our side we do -- we do just as much as the Democrats want to protect middle class taxpayers from a tax hike.

[...]

The clock is ticking and soon this calendar in this year, right here, this whole calendar will be history. Well, the Americans deserve real legislative action. And, as I've said, it's one thing to come on the floor now and try to raise the thresholds and so forth at this late date. But the fact of the matter is, is that small businesses are mainly partnerships, sub-s corporations, individual entities where the income comes to the small business person, who in most cases, if they want their businesses to grow put a lot of that income back into creating jobs and opportunities. I even heard the phony argument over the years that, uh, 'well, it's only 3% of small business.' Well, that 3% is 750,000 businesses that create 70% of the jobs in this society.

Hatch's Definition Of "Small Businesses" In The Top Bracket Includes Athletes And Wall Street Firms

Republican Definition Includes Athletes, Authors, And Other Non-Employer Tax Filers. According to Businessweek:

"McConnell's 50-percent-of-income figure is based on a July 12 finding by the Joint Committee on Taxation, a House-Senate panel that analyzes tax issues, that half of about $1 trillion of business income in 2011 will be reported on some 750,000 personal tax returns filed by people who pay the top marginal rates. He calls those small businesses. Yet the report says the data 'do not imply that all of the income is from entities that might be considered 'small.'' Almost 20,000 of those businesses, for example, had receipts of more than $50 million, it says.  

Besides Obama, McConnell's 50 percent figure includes authors, actors, athletes, and others who employ few if any workers, as well as hedge fund firms and major law partnerships most people wouldn't consider small. 'We are being over-inclusive in our use of small business income,' says Edward D. Kleinbard, a former staff director of the Joint Committee on Taxation who is now a University of Southern California law professor."

[BusinessWeek9/23/10; emphasis added]

Republicans Define All "Pass-Through" Entities As Small Businesses. As reported by the Washington Post, "Republicans continually define pass-through entities of all sizes as small businesses..." [Washington Post9/17/10; emphasis added]

"Pass-Through" Entities Republicans Count As "Small Businesses" Include A Wall Street Firm Worth $54 Billion. As reported by the Washington Post:

The thing is, some of those businesses are not particularly small. In fact, they're quite large.

Among the firms Republicans want to protect from new taxes, according to research by House Democrats: The management team at Wall Street buyout firm Kohlberg, Kravis and Roberts (KKR), which recently reported more than $54 billion in assets managed by 14 offices around the world. Auditing firm PricewaterhouseCoopers, a household name with operations in more than 150 countries. And the Tribune Corp., which owns the Chicago Tribune, the Los Angeles Times and the Baltimore Sun.

KKR, PricewaterhouseCoopers and the Tribune, it turns out, are organized as "pass-through" entities - companies that typically avoid corporate taxes by reporting profits on the individual tax returns of their owners, managers or shareholders.

[Washington Post9/17/10; emphasis added]

CAP: "Exceedingly Few Small Businesses" Fall Into Top Tax Brackets. From the Center for American Progress: "Exceedingly few small businesses will be affected if the Bush tax rates for the rich expire, and those that are will be making enough money to be paying in the top two income tax brackets. At the end of the day, just 12 percent of the revenue raised by allowing those tax breaks to expire will be paid by business people with employees, according to the Congressional Research Service." [Center for American Progress, 11/15/10]

Only 3 Percent Of People In Top Brackets Have Any Business Income At All. From the Center for American Progress: "But according to the Joint Committee on Taxation, just 3 percent of people with any business income at all—from an enterprise large or small—face either of the top two income tax brackets, which are the ones in question. Conservatives eventually conceded this point, but pivoted to the literal number of 'small businesses' that they claim will be affected if the tax cuts for the rich expire." [Center for American Progress, 11/15/10]

FactCheck.org: "Only 2 Percent" Of Those Reporting Business Income Face Higher Taxes Under Democratic Proposal. According to FactCheck.org: "[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." [FactCheck.org, 3/6/09, emphasis added]

Bush Economist: Businesses Republicans Define As "Small" Are Actually "Very Large." According to the Washington 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.'" [Washington Post9/17/10; emphasis added]           

Even Republican Sen. Alexander Admits, "Most Of The People" Hit By Dems' Tax Plan "Live On Wall Street"

Sen. Lamar Alexander (R-TN): "Most Of The People Whose Taxes He Is Trying To Raise... Live On Wall Street In New York." From a December 1 speech on the floor of the Senate:

ALEXANDER: I'm delighted to hear the eloquence of the Senator from New York. And as I was listening to him I was reminded that the people — most of the people whose taxes he is trying to raise live in New York. I mean they're not in Tennessee, we're a relatively low income state. So I admire him for his courage on — that's almost a tax earmark, you know, to — to be so specific that we're gonna raise taxes on just a small number of people, most of whom live on Wall Street in New York.

[C-SPAN via Political Correction, 12/1/10; emphasis added]

For Political Correction's previous coverage of Republican misinformation about small business taxes, see HERE, HERE and HERE.

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