Debate fact-checking long overdue - Hooray for Candy!

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While there appears to be no disagreement among the candidates that less than 3 percent of small business owners with pass-though business income would be impacted if these tax cuts ended, Governor Mitt Romney and Congressman Paul Ryan said in the first two debates that these 3% of small-business owners employ most of the workers in small businesses and account for most of the pass-through small business income in this country.

In the first debate Governor Romney said, “But those businesses that are in the last 3% of businesses happen to employ half of all the people who work in small business.”  Then Congressman Ryan in his debate said, “This one tax would actually tax about 53% of small-business income.”

Neither statement is correct and small business organizations, including the American Sustainable Business Council, Main Street Alliance and Small Business Majority, have been alerting the press to the misinformation.

Fortunately for whatever reason, the misleading statements about small business and the Bush tax cuts stopped last night. However, the inaccurate information has been put in the public record and needs to be corrected.

The Romney-Ryan team appears to be relying on a 2010 Congressional Joint Committee on Taxation (JCT) report to support their statements. That report estimated that in 2011 there would be about “750,000 taxpayers with net positive business income” who would be in the upper two tax brackets. These 750,000 taxpayers would account for 50% of all pass-through business income reported to the IRS.

But the report does not say that these 750,000 taxpayers are small-business owners. In fact the report tries very hard to stop this equating of these wealthy taxpayers with small business owners.

Here’s how the JCT addresses the matter:

“These figures for net positive business income do not imply that all of the income is from entities that might be considered ‘small.’”
To emphasize this point the JCT report says that in 2005 there were 19,520 S corporations and partnerships that reported pass-through business income of over $50 million each! No one should argue that these are small businesses.

The Romney-Ryan team clearly misused the report as the JCT staff apparently anticipated it might be. Pass-through entities like Bechtel, the Tribune Company, Ernst & Young, and PricewaterhouseCoopers are not small businesses. Neither are other pass-through revenue recipients such as K Street Lobbyists, hedge fund managers and other high-income individuals with business income from vacation rental property. These are not the Main Street small businesses Americans think of during these debates.

Clearly the public was being intentionally deceived because those pushing for more tax cuts for America’s wealthiest taxpayers know that there’d be little public support if the face of the Bush tax cut extensions were professional partnerships of lawyers, accountants and big businesses along with the billionaire owners of enormous family enterprises. So instead they steal the strong reputations of America’s small businesses and try to cast them as the victims if the tax cuts at the top are not renewed. It simply isn’t so.

The American public benefited from an active moderator fact-checking an obvious incorrect statement last night. Those complaining of Crowley’s actions are the same ones who approved of misleading the voters by candidates equating anyone receiving pass-through business income as a small business owner.

While a few of us small-business owners might be considered wealthy, the vast majority of us will not be negatively impacted by allowing the tax cuts on the top two income tax brackets to expire. And all of us will continue making hiring decisions based on consumer demand, not our personal income tax rates.

Hooray for Candy!

Knapp is the president and CEO of the South Carolina Small Business Chamber of Commerce.