by JORDAN WEISSMANN, the Atlantic
There might not be any phrase more useful for muddying up a discussion about taxes than "small business."
Take last night's debate, where President Obama and Mitt Romney rehashed a familiar two-point argument:
(1) Obama: I would like to raise taxes on income over $250,000.
(2) Romney: But you'll hurt small businesses.
When Romney and Obama go on about "small" businesses, they're not strictly talking about size. They're talking about the way that companies are legally organized -- partnerships, s-corporations, and sole proprietorships that pass through their profits to their owners, who then treat it as ordinary income on their taxes. The concern for small businesses sounds persuasive. After all, who doesn't want to protect small, vulnerable, but growing companies run by honest Americans whose income would be hurt by higher taxes?
In fact, the term small businesses is basically meaningless.
First, many small businesses aren't really what you would probably think of as "businesses." They're just ... people working alone. Freelancers, consultants, skilled construction workers, and such often organize themselves as a business for legal and tax purposes. About 78 percent of all companies in America don't actually employ anybody other than their owner. As Jay-Z so famously put it, "I'm not a businessman / I'm a business, man!"*
For sake of argument though, let's ignore all those solo operators. Instead we'll focus only on the roughly 4.1 million companies that are both affected by individual income tax rates and have actual employees on their payrolls. We can call these "actual small businesses." [MORE]
Via John Cashon