One of the top Democrats in the House of Representatives accused Republicans of pushing a "sham" argument in an effort to build public support for a full extension of the Bush tax cuts.
In an interview with the Huffington Post on Friday, Rep. Chris Van Hollen (D-Md.) took GOP leadership to task for lumping in hedge fund operators and big-time lawyers into the pool of "small businesses" that they claim would be hit by a tax increase on those making over $250,000 a year.
"It's pretty clear that they've been trying to disguise their position on tax cuts as a small business issue when the facts tell a very different story," said the Maryland Democrat. "They are using the label of small business to disguise the fact that some of the biggest beneficiaries [of keeping tax rates on the wealthy in place] are hedge funds, major Washington law firms, big private equity companies... What a sham."
The Maryland Democrat was taking his cues from a report by the Joint Committee on Taxation, which looked at how many businesses operate as "pass-through" entities in an effort to avoid corporate taxes by reporting profits on the individual tax returns of owners and managers. Under Obama's tax proposal, roughly half of the income generated through these pass-through entities would be subject to a tax increase -- a finding that spurred howls from Republican leadership in Congress.
Upon closer inspection, however, JCT reported that not "all of the income is from entities that might be considered 'small.'" Thousands (if not tens of thousands) of these entities had receipts in the dozens of millions. The management team at the hedge fund Kohlberg, Kravis and Roberts (KKR), the auditing firm PricewaterhouseCoopers, and the Tribune Corp., all qualified under the GOP's definition of small business.
Republican leadership, not surprisingly, defended their rubric for determining what small businesses would be hit by a tax hike on income over $250,000-a-year, arguing that the number of super-wealthy pass-through entities is a minor dot in a large pool.
"The bottom line is that Washington Democrats' tax hike would hit 750,000 small businesses across the United States, which constitute 25 percent of our small business workforce," said Michael Steel a spokesman for House Minority Leader John Boehner. "Rep. Van Hollen's spin doesn't change that. The American people, and a growing number of Democrats, believe we should be helping small businesses create jobs, not walloping them with a job-killing tax increase."
"People using this story that "some" or even "many" of the small businesses aren't small, have to acknowledge that there will, in fact, be a tax hike on hundreds of thousands of small businesses and families," said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky). "If it's not 750,000, what number are they satisfied with? Is it okay to "only" give a tax hike to 700,000 small businesses? 300,000? 100,000? I'd love to see that argument: "Hey, it's okay, we're only going to raise taxes on a couple hundred thousand small businesses!"
The dueling quotes portend what seems likely to become a heated debate over, predominantly, semantics. At what line of earnings, after all, does one business move from being qualified as small to large?
That said, continued research into the debate seems likely to yield even more examples upon which Democrats can build the case that the GOP's definition of a small business is broad if not deceptive. On Monday, for instance, Bloomberg News reported that "billionaire investor George Soros, most movie stars and Obama himself" would also fall under the GOP's small business rubric.
"Their effort to spin this as a small business issue just runs into the hardball of reality," proclaimed Van Hollen.