The presidential race has produced an interesting series of charges and counter-charges about the candidates' tax policies, and lately they've involved taxes on small business owners.
Sen. Barack Obama, D-Ill., has proposed raising taxes on couples making more than $250,000 or individuals making more than $200,000. That led his rival, Sen. John McCain, R-Ariz., to claim several times this month that Obama would raise taxes on 23 million small business owners. However, FactCheck.org, a nonpartisan project of the University of Pennsylvania's Annenberg Center for Public Policy, has released a detailed analysis debunking McCain's claim. It said the 23 million figure was based on a 2002 count by the U.S. Census Bureau of businesses of all sizes.
The latest figures for 2006 from the U.S. Small Business Administration estimate the total number of small firms with fewer than 500 employees at 26.8 million. But the SBA estimate includes more than 20 million non-employer firms, many of which are simply sidelines or hobbies for people who earn most of their money some other way.
Those small business owners could also include McCain and Obama themselves, both of whom earned money from their book sales. The Urban-Brookings Tax Policy Center estimates that fewer than 663,608 taxpayers with business income or losses would fall into the top two tax brackets next year and might then be subject to the higher taxes.
Still, FactCheck acknowledges that the proposal would probably raise taxes on hundreds of thousands of small business owners. That could be one reason why Obama is trying to reach out to small businesses with tax proposals, most recently last weekend with an idea borrowed from his new friend Sen. Hillary Clinton, D-N.Y.: a tax credit to encourage more small businesses to offer health insurance (see Obama Proposes Small Business Health Insurance Tax Credit).
The refundable tax credit would provide for up to 50 percent of the premiums that small businesses paid on behalf of employees. However, the tax credit would be expensive, costing an estimated $6 billion. The plan is also short on details, including what size limits would be imposed on the companies that would qualify.
Paying for the program could be a problem. The Obama camp has suggested it could be paid by savings in other areas, such as making it easier for generic prescription drugs to reach the market, and reducing payments to hospitals that cover uninsured patients since presumably more of these same patients would now have insurance from the small businesses where they work.
Still, the proposal seems more like wishful thinking than a cure-all. The rate of uninsured workers continues to climb, especially among small companies. The Obama campaign has said the proportion of small companies offering health insurance has declined to 45 percent in 2007 from 57 percent in 2000. If small businesses continue to drop health coverage, government incentives like tax credits will only go so far.
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