The Small-Business Boogeyman

Do politicians ever tell the truth? Usually when they speak of small businesses and taxes what they really mean is large businesses and taxes.

From The Small-Business Myth:

SMALL BUSINESS is the cute puppy of American tax policy, along with its related breed, the family farm. Invoke small business, and the inevitable response is the policymaking equivalent of awwww, how sweet. Suggest that a proposed change might hurt small business, and you might as well be advocating torturing puppies. Now we like a cute puppy as well as the next editorial board, and we're all for small business, too. But the problem with the way this argument is deployed is that the facts often do not support the claims of harm.

Just recently, the small-business boogeyman came up in the debate over the estate tax -- specifically, whether it is unfair to impose a tax on estates in excess of $7 million per couple (the level this year) or whether the first $10 million of every estate should be exempt from taxation. Predictably, the advocates of the $10 million proposal, Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.), raised the small business/family farm canard. "Many have relatively low profit margins and are considered 'wealthy' by the government only because they own expensive equipment or land," they wrote in a letter to The Post.

In fact, nearly all small-business and family-farm estates are already shielded from having to pay estate tax. If the estate tax were kept at its current level, as President Obama advocates, only 430 business or farm estates would owe any tax whatsoever in 2011, according to an estimate by the Brookings Institution-Urban Institute Tax Policy Center. Moreover, it's not true that these estates would be forced to liquidate to come up with enough money to pay the estate tax. At current levels, 13 family farms and 41 family-owned businesses would not have had enough liquid assets to satisfy estate taxes in 2005, according to a study by the Congressional Budget Office. Even these would probably not have to be sold on account of a tax hit, because payments can be spread over a 14-year period.

“… only 430 business or farm estates would owe any tax whatsoever in 2011…”

I wish politicians would run on something other than taxes. Then they may actually have to think and do something. I’m glad to see the Washington Post publish this.