Fiorina’s Fuzzy Math

  • Share
  • Read Later

This morning at a Christian Science Monitor breakfast Carly Fiorina made the case that Obama’s proposed tax hike on those who make more than $250,000 a year would be damaging to small businesses.

“In the Bush tax cuts, if they are repealed, 23 million small businesses will have their taxes raised. Why? Because 23 million small businesses file their income tax as individuals. And so, when Barack Obama blithely says, only the wealthiest are going to be taxed, he is ignoring the fact that 23 million small businesses file as individuals and those small businesses are the only growing sector of the economy right now and small businesses produce 60%, actually it’s more like 70, 70% of the new jobs in this country.”

Okay, let’s assume there are now 23 million small businesses in the U.S. today (the latest stats I could find were 21.5 million “schedule C” class businesses in 2005). There’s no way that all 23 million of those are netting more than $250,000. In fact, 94.5% of all “flow-through” entities (self-employed folks, which generally tend to be small businesses, though Tiger Woods also falls into this category) had receipts under $100,000 in 2007.

Fiorina was building on a Bush arguement from 2004. Bush loved to cite on the stump the plight of the 4.1 million “subchapter S” companies – another catagory of small businesses that have less than 100 shareholders and pay individual income taxes. As my former Bloomberg colleague Ryan Donmoyer — the best tax reporter in town — pointed out, the argument was a bit ridiculous because less than 5% of small businesses who file under sub-chapter S made more than $200,000, Kerry’s threshold in 2004. Putting aside the dubiousness of relying on a stale Bush arguement for his tax cuts, even with the sub-chapter S filers added in the total number of small businesses effected by a tax hike on those who net more than $250,000 a year remains a few hundred thousand – no where near the 23 million Fiorina claimed. I asked Fiorina to elaborate on how she arrived at the 23 million figure. She responded:

“My point is this: when Barack Obama says that the Bush tax cuts only helped the wealthy it is factually untrue. It is factually true that 23 million small businesses file as individuals. It is factually true that small businesses create 70% of the jobs in this country. So I honestly won’t even attempt to explain Barack Obama’s economic plan. You ought to ask them that, though.”

This statement, while factually true, is terribly misleading since only a small percentage of the 23 million small businesses would actually see tax increases and the Obama campaign argues that under his administration small businesses would benefit from his universal healthcare plan, offsetting any tax increases the top tier earners might see. So, when running HP did 23 million = a few hundred thousand? No wonder she got fired.