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Data dispite bush rich label for small businesses Original Source Link: (May no longer be active)
http://www.reuters.com/newsArticle.jhtml?type=politicsNews&storyID=4636764http://www.reuters.com/newsArticle.jhtml?type=politicsNews&storyID=4636764
Data Dispute Bush's 'Rich' Label for Small Business
Tue Mar 23, 2004 01:30 PM ET
By David Morgan
WASHINGTON (Reuters) - In the presidential race's war of words over the economy, President Bush makes it sound as if small-business owners are in the cross hairs of Democrat John Kerry's plan to roll back tax cuts for wealthy Americans.
But data from the Internal Revenue Service and the Census Bureau suggest the vast majority of small businesses provide their owners with incomes far below the $200,000-a-year mark where Kerry says he would begin eliminating tax cuts.
"Taxing the rich?" Bush said during a recent White House forum where his guests included the owners of a hair salon, a convenience store franchise and an office supply dealer.
"When you're running up individual tax rates, you're taxing small businesses," he said.
The only problem is that most companies in the small-business world are so-called Main Street businesses with 10 or fewer employees, including restaurants, small retailers and small manufacturers, Census and IRS data show.
Their profits fall into a median range of $40,000 and $60,000, according to the National Federation of Independent Business, a leading advocate of the small-business community. That puts them just above U.S. median household income of $42,409.
"These are not rich people," said NFIB researcher Bruce Phillips. "Changing the tax cut for the wealthiest Americans, for the most part, doesn't apply to our membership."
Bush did not mention Kerry at the forum. But with his re-election campaign trying to paint the Massachusetts senator as a tax-and-spend Democrat, analysts say there is little wonder that the Republican president would appeal to small-business owners already grateful for generous tax cuts.
NOT REALLY RICH?
"The president's tax cuts favor the wealthy, and I guess it's in his interest to try to convince lots of people that they are the wealthy," said Jared Bernstein, senior economist at the left-leaning Economic Policy Institute.
The NFIB estimates there are 13 million small-business people who are either self-employed or who employ at least one other person. Add in people who supplement their paycheck with a business venture and the number jumps to over 25 million.
The president has been promoting the idea of making his tax cuts permanent as a means of creating jobs. Federal government statistics credit small businesses with three-quarters of the 3.4 million new jobs in 2000.
The Washington-based Tax Policy Center says 30 percent of Bush tax-cut benefits will ultimately go to the top 1 percent tax bracket, where annual incomes start at $257,000 and average $1.3 million, based on 2000 figures.
But even among small businesses incorporated under subchapter-S of the IRS tax code, which Bush cited repeatedly in his warnings about taxing "the rich," the majority of enterprises generate income well below those levels.
Most companies in corporate America are S-corporations, which funnel profits to shareholders as personal income, according to the IRS.
Many S-corporations are too large to have dealings with the U.S. Small Business Administration. But IRS estimates still showed that 73 percent of their returns listed income of $100,000 or less in 2000. In fact, the majority -- 55 percent -- showed income of $50,000 or less, IRS data show.
DOCTORS, LAWYERS AND ACCOUNTANTS
However, the Census and IRS data do not reflect household income for business owners, which may include income from a working spouse, investments, pensions and other sources.
Small businesses most likely to appear at the top of the income pile are partnerships run by doctors, lawyers and accountants, analysts say.
White House officials contend that preserving the Bush tax cuts for the wealthiest 1 percent of Americans is a major small-business issue. Three-quarters of the richest taxpayers, they say, receive income from "flow-through" entities including S-corporations, partnerships and sole proprietorships.
But just how many active small-business owners live on the highest income stratum seems uncertain.
"That's the big debate," said Eric Engen, a scholar who specializes in tax and budget issues at the American Enterprise Institute, a conservative think tank.
"If you look at people in those high-income ranges, the number with business income is quite high. But the question is, how many of them are either only a passive owner or are just getting some small consulting income on the side," he said.
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