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I haven't seen this one posted yet, so I will lay it out below. The question is whether it should be called a "gaffe" or just another Romney lie.

To begin, let's look at the actual transcript, as posted by NPR:

NPR Debate Transcript

What Mitt said about small business taxation:

Mr. President, you're absolutely right, which is that with regards to 97 percent of the businesses are not — not taxed at the 35 percent tax rate, they're taxed at a lower rate. But those businesses that are in the last 3 percent of businesses happen to employ half — half — of all of the people who work in small business. Those are the businesses that employ one quarter of all the workers in America. And your plan is take their tax rate from 35 percent to 40 percent.
What Mitt has done here is to conflate two different pieces of data and parse his words so that they are literally true but provide a false impression.

I will explain below .......

What Mitt Romney said:

Mr. President, you're absolutely right, which is that with regards to 97 percent of the businesses are not — not taxed at the 35 percent tax rate, they're taxed at a lower rate. But those businesses that are in the last 3 percent of businesses happen to employ half — half — of all of the people who work in small business. Those are the businesses that employ one quarter of all the workers in America. And your plan is take their tax rate from 35 percent to 40 percent.
What Mitt is trying to say here is that small businesses file their taxes as individuals (such as Subchapter S corporations), and so ending the Bush tax cuts would impact these "job creators". The 97% of these businesses that are impacted by the Bush tax cuts are impacted because they file as individuals, not corporations. The reason that Mitt was focusing on these particular businesses is because both candidates agree with corporate rates should be lowered, but Mitt was arguing that 97% of small businesses would not be impacted by lowering the corporate rates.

It is true that 3 percent of "small business" indeed employs half of all people who work in small businesses (AFAIK), keeping in mind that the definition of a small business is an employer with less than 500 employees. Examples of such "small businesses" include Orbital Sciences Corporation.

However, here is where Mitt ran off the rails: many of those "small businesses" indeed file taxes as standard corporations, even though they may be indeed small. Just because you are a small business doesn't mean you can't file the standard 1120 tax return, and many do. If you are starting a small business and you need investors, one approach is to incorporate as a standard business so you don't look hinky to investors (although it is becoming common for investors to accept investment in LLCs, which are effectively partnerships).

The 3% of small businesses that hire 50% of employees and the 3% of small businesses that don't file as individuals are not the same companies.

So ... Mitt's "3% of small businesses" would include a large number of small businesses that file as corporations, and therefore would not be impacted by ending the Bush tax cuts. Mitt got it wrong.

Was it a gaffe? Was it a lie?  I don't know.

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Comment Preferences

  •  Tip Jar (7+ / 0-)

    "The Obama Administration has been an unmitigated disaster" - Osama Bin Laden

    by Explorer8939 on Wed Oct 10, 2012 at 09:38:28 AM PDT

  •  Mitt Romney is a lie. (0+ / 0-)

    You can't make this stuff up.

    by David54 on Wed Oct 10, 2012 at 10:12:13 AM PDT

  •  Thanks for the clarification (0+ / 0-)
  •  Worse than even that -- it's BS + Brain Mush (1+ / 0-)
    Recommended by:
    BRog

    I'm not checking facts, assuming you're right....

    Here's what Romney's self-contradictory BS amounts to:

    • 3% of small businesses are incorporated and subject to corporate income tax rates.
    TAXES?    Their taxes do NOT go up with expiration of Bush tax cuts.

    • 97% of small businesses are sole proprietorships, partnerships, S corps -- these owners file their business income as personal income.
    TAXES?      Approx. 97% of THESE profit less than $350,000 a year -- so their taxes also do NOT go up.

    • Only 3% of those individually-owned businesses profit over $350,000 -- and we estimate that 90% of these are law firms, private medical practices, sole owner consultancies, etc. These have virtually no employees other than small admin staff.
    TAXES?       Only this small 3%, who employ substantially LESS than 3% of workers, might see their individual income taxes go up.

    • A different 3% of small businesses -- those which employ 50% of small business employees and 25% of all workers -- are almost all incorporated and therefore NOT AT ALL (or barely) in the category of the 3% of high individual income business owners.
    TAXES?  Virtually NONE of those businesses with the most employees are affected by expiration of the Bush tax cuts.

    The TRUE statement:

    Mr. President, you're absolutely right, which is that with regards to 97 percent of the businesses are not — not taxed at the 35 percent tax rate, they're taxed at a lower rate.

    In addition, [...deletion...] 3 percent of (small) businesses happen to employ half — half — of all of the people who work in small business. Those are the businesses that employ one quarter of all the workers in America. And your plan [...deletion...] will not increase their taxes.

    Our cause: a More Perfect Union.

    by Roby NJ on Wed Oct 10, 2012 at 10:22:56 AM PDT

  •  It is not their business that is getting (0+ / 0-)

    taxed, it is their income that they make from the business.  They claim that this is wrong because it will decrease hiring, but I have still not had anyone explain to me why someone's income tax rate will affect hiring.  I expect business owners to make rational decisions on hiring, and do so when it is in the best interest of the company, i.e. when it is more profitable.

    Your request has bad syntax or is inherently impossible to satisfy. --httpd_err400form

    by Bob Novak Douchebag of Liberty on Wed Oct 10, 2012 at 10:37:09 AM PDT

    •  Correct (0+ / 0-)

      Most corporations have multiple shareholders, and those shareholders expect management to hire people based on the needs of the business. To not hire people when there are profits to be made would be malpractice, even if those profits are to be taxed at a higher rate. A profit is a profit.

      "The Obama Administration has been an unmitigated disaster" - Osama Bin Laden

      by Explorer8939 on Wed Oct 10, 2012 at 11:08:41 AM PDT

      [ Parent ]

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