Grover "Bathtub" Norquist has a forum on Politico today to decry Obama's tax plan as a tax increase on small businesses. I know, it's a shocker. It's also chock full of dubious logic and whining. Check out the very first paragraph:
The Tax Policy Center and the Barack Obama campaign used some sleight of hand this week in Politico. To quote Eric Tolder of the TPC, "Most small-business people, like most everyone else, are not really high-income." While this is true, it completely and totally misses the point.
Note to Norquist: It's exactly the point.
Grover's argument is twofold. His first argument is that more small business profit will be taxed under Obama's plan.
The Obama campaign maintains that the number of small-business owners is what’s important. Economists know what matters is the tax rate that’s applied to the bulk of small-business income. Make no mistake about it: Obama’s plan to raise taxes on households making more than $250,000 will raise taxes on most small-business profits in America.
Well, duh. It's a progressive tax system, after all, Mr. Norquist. The argument conservatives always make is that small businesses will be hurt if taxes are higher (note I don't say raised; see the second argument below). But by applying a higher tax only to the most profitable of small businesses, Obama is explicitly retaining lower taxes for most small businesses.
In fact (though Norquist doesn't link to it) Eric Tolder's argument in an earlier Politico piece gives the actual impact:
According to the Tax Policy Center, only 1.4 percent of people defined by the Treasury as small-business owners are in the top two tax brackets and could be subject to Obama’s tax proposal.
Since 98.6% of small business would keep the 2001 tax rates, that enables them to have more capital to be "the engine of the economy" Norquist and his buddies claim to want. In reality, Norquist shows his true colors here. By obfuscating the point, he tries to hide the genuine benefit a majority of small businesses will receive under Obama's plan: They get to keep the Bush tax cut. Note, as well, that the "economists" are unnamed. I'd like to see their argument, wouldn't you?
Tha brings me to Norquist's second argument: That Obama is raising taxes on small businesses, with potential deleterious effects.
Fewer Americans would be interested in opening or expanding small businesses. Tax evasion and legal tax avoidance would spike, as tax shelters would once again become a booming industry. Since small businesses create a majority of jobs in America, Main Street closing up shop will have a direct impact on the family budget, as well. Plants and equipment will go unused. Despite the misguided opinions of static scorers in Washington, federal tax revenues will likely decline as the economy staggers into a full-on recession.
To that, the answers are simple. Obama is restoring the rates that existed prior to 2001. Period. And only to a minority of small businesses, at that -- those that are sole proprietorships, partnerships or S Corporations with over $250,000 in profit. The proof's in the pudding, Mr. Norquist. Can you show me the deleterious effects those rates had on small businesses prior to 2001 -- you know, during the economic expansion of the 1990s? Can you show me how much better small businesses have performed since 2001? I suspect you can't; and until you can, don't bother arguing otherwise. In other words, put up the data, or shut up. As for recession, where was the recession in the 1990s, when the higher rates were in effect? What's the economy look like now, with the lower rates? Sure, sure, there's other factors in play. The point is that there's no actual evidence to back up Norquist's assertions. He doesn't even bother to present any.
Norquist even uses the hoary "some say" argument against Obama:
The sole proprietor and partner rate would rise from 37.9 percent all the way up to a staggering 50.3 percent. Many Democrats in Congress have proposed making all small businesses (including S corporations) pay this 50-plus percent rate.
Aside from the obvious fact that taxing S Corporations at 50.3% isn't in Obama's plan, there's the additional point that relatively few businesses making this kind of income are sole proprietorhips or even partnerships. Most good business attorneys would move these sorts of clients to S or C Corporations or Limited Liability Partnerships to protect their owners from personal liability. Norquist is simply painting with a broom.
Essentially, Obama's plan on small business taxation says that at $250,000 of income or higher, small businesses are not so small. Those businesses could pay corporate tax rates if they filed as C Corporations, of course. Or they could understand that that level of income makes them among the richest of Americans, and they could pay the same share as the rest. That's a difficult concept for Grover Norquist; but I expect most Americans can grasp it, if it is presented to them.