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Originally published September 25, 2012 at 8:31 PM | Page modified September 25, 2012 at 9:54 PM

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Truth Needle: Ad misleads in slamming Inslee for big tax hike on small business

The Truth Needle: A television ad accusing Democratic gubernatorial candidate Jay Inslee of voting for a massive tax increase on small businesses and claiming the stimulus program he supported "didn't deliver the promised jobs" is misleading.

Seattle Times staff reporter

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The claim: The Republican Governors Association is airing a television ad featuring five gray-haired men grousing over breakfast about Democratic gubernatorial candidate Jay Inslee. The ad reprises claims made in an earlier ad by the association that said: "Local small businesses struggling to stay open, and Inslee votes them a massive tax increase, making their survival even more difficult. Skyrocketing federal debt slowing our recovery, and Inslee votes for an $800 billion spending program that never delivered the promised jobs."

What we found: Mostly false.

The tax-increase claim refers to the federal health-care law, but exaggerates its impact on small businesses in Washington. The ad also repeats an already discredited claim about federal stimulus spending.

First, the "massive tax increase."

The Republican Governors Association said Inslee's vote to approve the Affordable Care Act in 2010, when he was a congressman representing Washington's 1st Congressional District, amounts to a massive tax increase.

The law requires businesses with at least 50 full-time employees to offer health insurance to workers starting in January 2014, or face penalties that the U.S. Supreme Court has described as a tax.

Businesses with fewer than 50 full-time employees — or the equivalent in part-time workers — are not required to offer insurance.

In Washington state, 96 percent of employers have fewer than 50 employees, so the overwhelming majority of small-business owners here will not have to offer health insurance to their employees.

Small businesses are most commonly defined as having 50 or fewer employees — the definition widely used by states, including Washington, according to the National Conference of State Legislatures, a bipartisan organization that provides research and technical assistance on state issues.

But the Republican Governors Association opted to use a more expansive definition, one adopted by the U.S. Small Business Administration (SBA), which considers a company to be a small business if it has fewer than 500 employees.

Only 2 percent of businesses in Washington state are bigger than that, according to the SBA's most recent analysis.

Jon Thompson, the Republican group's spokesman, explained its rationale for adopting the SBA standard: "Since it's a federal issue ... we believe it's very appropriate to cite a federal entity such as the SBA on what defines a small business."

Given the health-care law's exemption, it might have been a strategic one as well.

The health-care law — also known as Obamacare — requires companies with more than 200 workers to automatically enroll employees in health-insurance plans (although employees can opt out.) About 99 percent of businesses of that size already offer insurance, according to a 2010 survey by the Kaiser Family Foundation.

What's left then, is the group in the middle. About 3.2 percent of all employers in the state — some 7,591 businesses — have between 50 and 250 workers. It's unknown how many of them already offer insurance. Those that don't will have to offer it for the first time.

For many of those businesses, the law gets convoluted: If they don't offer insurance, and an employee buys her own and files for a federal tax credit for the premiums she paid, the business can be penalized $2,000 for each full-time employee. The fine, which the Supreme Court found to be a tax, doesn't apply to the first 30 employees.

Companies also can be penalized for offering insurance that doesn't meet minimum standards.

Whether those penalties constitute a massive tax increase on small business depends on whether you agree that a small business is one with fewer than 50 employees, or one with fewer than 500.

We think the smaller number reflects most people's understanding of a small business, especially the mom-and-pop businesses shown in the group's earlier ad.

The second part of the claim — that Inslee "voted for an $800 billion spending program that never delivered the promised jobs" — refers to Inslee's vote as a congressman to approve the American Recovery and Reinvestment Act of 2009.

That bill, commonly referred to as the stimulus, was a legislative package that combined $787 billion worth of spending and tax credits to help jump-start the economy during the recession.

PolitiFact, a project by the Tampa Bay Times that fact-checks political statements, has repeatedly checked Republican claims of "promised jobs" from the stimulus, and found them to be mostly false.

Here's why: There was never a promise that a certain number of jobs would materialize.

As PolitiFact has noted, two of President Obama's economic advisers made job projections in a report they authored in January 2009.

In the report, "The Job Impact of the American Recovery and Reinvestment Plan," they projected that the stimulus plan would create 3 million to 4 million jobs by the end of 2010.

The report also included disclaimers that clearly spelled out they were making an educated estimate, not a promise that an exact number of jobs would materialize. Because the claim about the health-care bill has an element of truth but ignores facts that would lead to a different impression — namely that a typical small business in Washington state, one that employs fewer than 50 people, would be exempt from the law — we find the claim to be mostly false.

We find the same to be true of the stimulus claim.

Susan Kelleher: 206-464-2508 or skelleher@seattletimes.com. On Twitter @susankelleher.

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