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Originally published Friday, February 27, 2009 at 12:50 AM

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FACT CHECK: GOP adrift on small business claim

Claims that President Barack Obama's tax plans are an assault on small business skirt the likelihood that most job-producing small businesses wouldn't feel that pinch at all.

Associated Press Writer

WASHINGTON —

Claims that President Barack Obama's tax plans are an assault on small business skirt the likelihood that most job-producing small businesses wouldn't feel that pinch at all.

Obama is proposing to raise taxes on households earning over $250,000 by increasing the rate on the top two tax brackets and limiting deductions, starting in 2011.

Republicans and other critics, knowing they will get little mileage from defending the rich, instead are casting the plan as a tax hit on people who run industrious little companies driving job growth.

That's not likely, according to one in-depth analysis, which found that more than 95 percent of small business owners would be off the hook.

Obama does not propose higher business taxes.

But critics reason that owners of many small companies report business income on their personal tax returns instead of filing corporate taxes. That exposes their business's earnings to Obama's higher tax rates on the wealthy.

To be sure, some business owners would get caught in that net.

But for one thing, most small businesses don't create jobs. They tend to be lawyers, accountants and other professionals who earn some of their money from partnerships or otherwise organize themselves as a business entity.

As well, many small businesses with employees don't earn enough to put their owners over the threshold for the higher tax rates.

Indeed, most of them - like Joe the Plumber of presidential campaign fame - would probably get Obama's tax break for the middle class.

Obama also proposes to eliminate capital gains taxes on small businesses and make a research tax credit permanent. He would expand a provision that allows money-losing companies to get refunds from taxes paid in previous years, when the companies were profitable.

Still, Obama is not cutting taxes for 95 percent of Americans, as his supporters often say. The president himself asserted Thursday that he's giving a "a middle-class tax cut to 95 percent of hardworking families."

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An independent analysis estimated that 75.5 percent of all U.S. households would get his tax credit for workers. A higher percentage of working families would get it.

THE CLAIMS:

-"In fact, a majority of those penalized by the proposed tax increase in this budget are small businesses." - Republican Rep. Eric Cantor of Virginia.

-"Small businesses and the entrepreneurs who lead them have been the primary drivers of job growth over the past decade. This plan would punish them with higher taxes, resulting in less government revenue, less economic growth, and fewer jobs - not more." - Bruce Josten of the U.S. Chamber of Commerce.

THE FACTS:

The U.S. has roughly 6 million businesses that employ people, and 20 million businesses without employees.

The latter group includes solo operators, professionals in partnerships and those who organize themselves as a business for tax purposes but earn little if any income from the enterprise.

Small businesses are defined as having fewer than 500 workers each.

Sizable companies within that group wouldn't be snagged by Obama's personal tax rates simply because they are too large to report income on the individual return of the owner.

Many truly small operations simply don't make enough to qualify for the tax hit.

Last year the Tax Policy Center run jointly by the Urban Institute and Brookings Institution examined the likely effects of Obama's plans to raise taxes on couples making over $250,000.

The analysis estimated that 663,000 taxpayers who report business income or losses fall in the two tax brackets whose rates would go up under Obama. Many are small businesses on paper, without workers.

Millions of other small-business owners would be clear.

Copyright © 2009 The Seattle Times Company

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