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FactCheck.org : Facts Falling Off the Fiscal Cliff
article by fact check
Written by Robert Farley
article by fact check
Written by Robert Farley
In press conferences on the so-called fiscal cliff, House Speaker John Boehner greatly exaggerated the negative effect on the economy of raising taxes on upper-income individuals.
Boehner erred when he said that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.” That’s incorrect. Boehner’s spokesman said the speaker simply misspoke, but Boehner is a repeat offender with this bogus claim.
Boehner repeatedly cited an Ernst & Young analysis to claim that raising taxes on upper-income earners would “destroy nearly 700,000 jobs in our country.” But that analysis assumes revenue from the taxes would be used “to finance a higher level of government spending,” even though Obama would use the added revenue to reduce the deficit. The analysis also takes an extremely long view: Only “two-third to three-quarters of the long-run effect” is expected to occur within a decade.
Boehner said raising taxes on those making over $250,000 “would slow our economy.” But according to a recently released report by the nonpartisan Congressional Budget Office, the effect on the economy would be “relatively small.”
The “fiscal cliff” is shorthand for a $560 billion mix of tax hikes and deep spending cuts that are scheduled to kick in at the end of 2012. The Congressional Budget Office warned that absent intervention by federal legislators, the confluence of tax hikes and spending cuts “will lead to economic conditions in 2013 that will probably be considered a recession.” President Barack Obama and congressional Democrats have advocated that the George W. Bush tax cuts be allowed to expire for those making over $250,000. In a press conference on Nov. 9, Boehner said he believes a tax hike on the wealthy would harm an already fragile economy.
Boehner has got a point — some small-business owners will see taxes go up, and the CBO projects some restraint on economic growth as a result. But he and other Republicans exaggerate this greatly, even to the point of making statements that are downright false sometimes.
Half of wealthy people are small-business owners?
In his news conference on Nov. 9, Boehner repeated an incorrect talking point about the percentage of wealthy Americans who are small-business owners.
Boehner, Nov. 9: The problem with raising tax rates on wealthy Americans is that more than half of them are small-business owners. Raising tax rates will slow down our ability to create the jobs that everyone says they want.
It’s not true that more than half of the people who earn more than $250,000 are small-business owners. Boehner’s spokesman, Michael Steel, said Boehner misspoke, that he meant to say half of small-business income, not half of small-business owners. If it’s an honest mistake, it’s one Boehner has made before.
Steel pointed to a July 14, 2010, report from the Joint Committee on Taxation that found 53 percent of the $1.3 trillion of business income would be reported on tax returns in the top two tax brackets that Obama proposes to raise taxes on. However, the JCT study makes clear that not all of this income might be considered “small”; that in 2005, “12,862 S corporations and 6,658 partnerships had receipts on more than $50 million.”
In 2011, the Treasury Department’s Office of Tax Analysis took a more in-depth look at the issue using a more realistic definition of “small business” and it shows that more than 90 percent of small-business owners wouldn’t be affected by Obama’s proposal to raise taxes on individuals making over $200,000 and couples making over $250,000. Moreover, about 90 percent of those who would be affected by the tax increase are not small-business owners.
Using the Treasury report’s “narrow” definition of small business — one with $10 million maximum in income (or deductions) — and defining “owner” as anyone who gets at least one-fourth of all his or her income from a “small business,” then:
Only 8 percent of small-business owners have income of $200,000 or more. So 92 percent of small-business owners wouldn’t be affected by Obama’s proposal. (Table 14, Small Business Owners, Narrow Definition) They account for 57 percent of the income of small-business owners, so Boehner would have been on more solid ground had he said — as his spokesman says he meant to say — “small-business income” instead of “small-business owner.”
Of the 1,191,000 taxpayers who fall into the top two tax brackets that would see increases under Obama’s plan, only 133,000 (11 percent) reported any small-business income at all, and only 105,000 (9 percent) qualify as small-business owners under the narrow definition. (Table 17)
Furthermore, despite Boehner repeatedly referring to small businesses and “job creators” interchangeably, the notion that small businesses are necessarily “job creators” is also a big exaggeration. “Slightly more than one-fifth of small businesses” qualify as an “employer,” the report states. (Page 1)
The Ernst & Young Study
In making his case for the Bush tax cuts to be extended for everyone, Boehner has repeatedly cited a study done by the accounting firm Ernst & Young.
Boehner, Nov. 7 press conference: The independent accounting firm Ernst and Young says going over part of the fiscal cliff and raising tax rates on the top two brackets will cost our economy more than 700,000 jobs.
Boehner, Nov. 9 news conference: On Wednesday I outlined a responsible path forward to avert the fiscal cliff without raising tax rates. About 24 hours after I spoke, the Congressional Budget Office released a report showing that the most harmful consequences of the fiscal cliff come from increasing tax rates. According to Ernst & Young, raising the top rates would destroy nearly 700,000 jobs in our country.