On today's broadcast of America's Newsroom -- one of Fox News' purportedly objective news programs -- anchor Martha MacCallum purported to debunk a statement made by Democratic strategist Maria Cardona about the impact on small businesses of letting the Bush tax cuts expire:
RON BONJEAN (REPUBLICAN STRATEGIST): Providing economic certainty to small businesses is key to getting people to hire them again and you know, the middle class is suffering but so are small businesses, who are -- do fall in the upper-tier brackets and raising taxes on small businesses in a bad economy is a really bad idea.
MacCALLUM: Why -- Maria, why does that idea fall on deaf ears with the administration and with most Democrats?
MARIA CARDONA (DEMOCRATIC STRATEGIST): Well I think a couple reasons. First of all because I know that Republicans like to argue that the tax cuts for the top income earners are going to affect small businesses, but in fact, that's not true. Ninety-nine percent of small businesses do not fall into the top one percent of income earners in this country -
MacCALLUM: No, That is not true, actually. In fact, half of the people that make -
CARDONA: No. It is true -
MacCALLUM: Wait, Maria. Hold on, I'm going to call you on that because half of the people who make over $250,000 a year in this country are running a small business. Half of them. So, you know, this notion that it's not going to make a difference - and if you talk to small business owners across the country, which, you know, I do whenever I get the chance to, they'll tell you I'm not hiring, I'm worried about health care, I'm worried about this. So why not pull the brakes off of them and help them out?
So who's right, Cardona or MacCallum?
Cardona said 99 percent of small businesses "do not fall into the top one percent of income earners in this country." This appears to be largely true. Here's what we know: According to the Tax Policy Center only 1.7 percent of taxpayers who report business income on individual returns will be in the top income tax bracket in 2011, meaning they earn more than $373,000. The National Taxpayers Union says the top 1 percent of income earners in 2008 included those with an adjusted gross income of $380,000. So Cardona can't be very far off.
So why did MacCallum "correct" her so vehemently? Who knows. MacCallum seemed to think she had disproved Cardona's statement by saying, "half of the people who make over $250,000 a year in this country are running a small business." Even if that were true, it doesn't contradict what Cardona said. (Wealthy taxpayers with business income can comprise both a small portion of all "small businesses" and a large portion of those in the top two tax brackets.) However, while it's true that most taxpayers in the top two income tax brackets report business income, that doesn't mean they run what we consider to be "small businesses."
As Politifact.com noted, "It's impossible to know how many of these high earners are what most people think of as small business owners."
The U.S. Treasury Department found in 2007 that many of the wealthiest tax filers report some type of non-wage income, such as income from a sole proprietorship, a partnership or an S corporation. (An S corporation is simply a corporation that chooses to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes.) The Treasury Department estimated that 75 percent of tax payers in the top bracket reported this type of income.
Does this mean that all those wealthy taxpayers were small business owners? Probably not. This kind of income could be reported from anyone who earned money from a source other than a regular job, such as consulting or public speaking. It could also be reported by those who make most of their income from partnerships, such as law firms and medical practices. And it could include investors who have little involvement in the day-to-day operations of a company.
It's impossible to know how many of these high earners are what most people think of as small business owners. One indication, however, might be if these wealthy taxpayers reported that most of their income was from this business-type income.
And according to William Gale of the Tax Policy Center, "most people in the top income brackets don't rely mainly on small-business income":
And just as most small businesses aren't owned by people in the top income brackets, most people in the top income brackets don't rely mainly on small-business income: According to the Tax Policy Center, such proceeds make up a majority of income for about 40 percent of households in the top income bracket and a third of households in the second-highest bracket. If the objective is to help small businesses, continuing the Bush tax cuts on high-income taxpayers isn't the way to go -- it would miss more than 98 percent of small-business owners and would primarily help people who don't make most of their money off those businesses.
From the November 12 edition of Fox News' America's Newsroom: