ObamaNomics Vs Prosperity

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The income tax code requires profits from most small businesses to be reported as income on the personal tax returns of the business owners.

“Small” is a misleading term in this context, because this one category of taxpayer ranges from part time endeavors with no employees, earning a few hundred dollars a year, up to what many consider medium sized businesses with scores of employees.

After Senator Obama was embarrassed by his encounter with Joe the Plumber the McCain campaign began to point out, correctly, that tax increases on small businesses would put the employees of those businesses at risk, and have a negative effect on the economy as a whole.

Obama defended his position with the sneering assertion that 98% of small businesses make less than $200,000.  While not too far from the truth, this Obama statistic is irrelevant and misleading.

Here are some data – some hard facts – from the IRS Statistics of Income Division for 2006, the latest available:

• 54% of taxpayers reporting more than $200,000 in income were small business owners.
• 61% of of all small business income was reported by taxpayers earning more than $200,000.
• 2.2 Million small business owners reported more than $200,000 in income.

Senator Obama exaggerates the fraction of small businesses earning less than $200,000.  IRS data put it at about 94%. But what’s most important is this statistic is irrelevant to the tax debate.

Obama deceptively contrives a single category that combines a hobby-artist who sells a few paintings on Ebay or a one-man plumbing business, together with a major car dealership, a construction company, or a software developer with scores or even hundreds of employees.

As the figures above demonstrate, more than half the taxpayers Obama intends to punish are businesses that are large enough to have several employees now, and the potential to expand and hire more employees in the near future.  This segment of the “small business” category creates nearly all the new jobs in America, year after year.

Historically, more small business expansion is funded by reinvesting what remains of profits after paying taxes than by borrowing.  In this time of banking crisis and contraction, small business access to credit has declined, dramatically.  Therefore, after-tax profits are even more critical if businesses are to expand and hire more people to offset the jobs lost in recent months.

Yet, at this critical moment Barack Obama promises to cripple the very business sector that could lead us out of recession with punitive tax increases.

This is being written early on Election Day, before we know who will be the next President.  If Barack Obama wins, and if Congress rubber-stamps his small business tax increase, America will suffer a much deeper recession and much longer period of economic misery.