There is no other way to describe an article with the subhead "Under Obama Plan, Some Entrepreneurs' Bills Would Soar." The piece centers on an extremely atypical small business owner who claims that her taxes would increase by more than 19 percent under President Obama's tax proposals. This person's situation would describe that of less than 1 percent of all small business owners so it is difficult to understand why such a person would be prominently featured in an article on President Obama's tax plans. The article also includes several other misleading comments. The article claims that the segment of business owners who would see substantial tax increases is most responsible for new jobs. There is no evidence to support this assertion. Extensive analysis of job creation and destruction by firm size finds that firms at all sizes grow on net at roughly the same rate. The article devotes a great deal of space to the percentage of small business owners who might have incomes that place them over the $250k cutoff that subjects them to higher taxes. This is almost completely irrelevant to anything. If a small business owner crosses this threshold by a small amount, as most in this marginal category would by definition, then it has very little impact on their tax bill. For example, if a business owner crosses the threshold by $10,000, then she would owe another $600 in taxes, an increase equal to 0.2 percent of the income of a family earning $260k. The article also hypothesizes that President Obama might subject the income of people earning above $250k to the full 12.4 percent Social Security tax. During the campaign, President Obama suggested that he might impose a 3.0 percent tax on this income. Finally, the article asserts that: "certain very large companies must organize as separate entities that are taxed twice -- on profits and shareholder dividends." Actually, it is not true that any business "must" organize as a separate entity. Certain very large businesses choose to incorporate because they find that the benefits that the government gives them by granting corporate status are so great as to make it worthwhile to pay the corporate income tax. It is therefore incorrect to say that they are being taxed twice. The owners have decided to get the benefit of corporate status for which they pay the corporate income tax. Then, as individuals they pay taxes on the dividends they earn from the corporation. The corporate tax is completely voluntary -- if individuals did not feel that the benefits given them by the government from allowing legal incorporation did not exceed the size of the tax, then they could structure the business as a partnership and not pay the corporate income tax.
--Dean Baker