Business Leaders Say Stop Using Bogus Definition of Small Business to Mislead Voters and Policy Makers

Business Leaders Say Stop Using Bogus Definition of Small Business to Mislead Voters and Policy Makers

Washington, DC, October 10, 2012 ­­– The American Sustainable Business Council (ASBC), which represents small- and medium-sized companies, calls on candidates for office to stop misleading voters with bogus data based on inaccurate definitions of small business. Specifically, a report commissioned by the National Federation of Independent Business (NFIB) and the U.S. Chamber of Commerce, implied a complete falsehood: that the top 3% of small businesses are responsible for more the 50% of jobs in the United States.

“I’m incensed that a candidate for office would use small businesses to mislead voters,” said Frank Knapp, Vice Chair of ASBC and CEO of the South Carolina Small Business Chamber of Commerce. “Small businesses are the engine of our economy, not a way to score points in a debate.”

In the first Presidential debate last week, much discussion focused on the potential impact of tax policy on small businesses. But there was a dispute over the definition of small business, stemming from the NFIB/U.S. Chamber report.

ASBC contends that careful reading of the report shows that attribution of jobs to small businesses was made not to the top 3 %, but to all businesses that the report the report defined as small. Therefore, the statement that the top 3% of small businesses employ 50% of US workers is false.

Further, the report’s definition of small business was itself erroneous:

·         The report defines a small business by its corporate tax structure (S-Corp, LLC, Sole
        Proprietorship) instead of the most common definition of fewer than 100 employees. 

·         The report incorrectly equates individuals with any amount of taxable business pass-through income from an S-Corp or LLC with small business owner/operators who make hiring decisions.

“Under this wrong definition of small business, all of the big accounting firms, with tens of thousands of employees each, and some massive global companies like Cargill, would be considered ‘small,’” said Scott Klinger, Tax Policy Director for ASBC. “It would be misleading to say you are proposing tax policy to help small business if you are using this definition.”

“NFIB claims to represent me, but I’ve never heard from them and they’ve never asked my opinion,” said Josh Knauer, President and CEO of Rhiza Labs.“My company was recently named one of Pittsburgh’s 10 fastest-growing tech companies. We have directly benefited from the tax dollars that went into the research that created Internet technologies long ago. This country needs to invest more in basic research to plant the seeds for the next inventions that will change our lives in ways we can’t presently imagine. I never hear the NFIB talk about that.”

Dean Cycon, CEO of Dean’s Beans Organic Coffee, in Orange, Massachusetts, does know NFIB.  “They tried to get me to sign up with them,” he said, “but it was clear that they represented a political agenda, not a small business agenda. I told them to take a hike. So it was shocking to hear them quoted so much in the recent debate, as if they were some sort of neutral, authoritative body. They are neither.”

The American Sustainable Business Council and its member organizations represent more than 150,000 businesses nationwide, and more than 300,000 entrepreneurs, executives, managers, and investors. The non-partisan council includes chambers of commerce, trade associations, and groups representing small business, investors, microenterprise, social enterprise, green and sustainable business, local living economy, and women and minority business leaders. ASBC informs and engages policy makers and the public about the need and opportunities for building a vibrant and sustainable economy.  www.asbcouncil.org

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Editor’s notes:

The NFIB-commissioned report (July 2012) implies that job figures apply to business owners paying taxes in the top-two tax brackets (the top 3%). It cites an April 2011 E&Y report, which instead clearly says that all “flow-through businesses” employ 54% of the private sector workforce.

Since the issue is tax policy impact on small business:

·         The nonpartisan Joint Committee on Taxation estimated that only 3 percent of small business owners who pay pass-through taxes do so in the two highest income brackets. The Center on Budget and Policy and the Tax Policy Center have each reported that the percentage of business owners likely affected by the tax hike would be even smaller (CBPP), as low as 1.5 percent (TPC).

The 3 percent of “small business owners” who would see tax increases include many individuals who play no role whatsoever in running a business or who receive business income from “businesses” that have no employees.

The 3 percent includes:

        Individuals who are only passive investors. A Treasury analysis found that on average “small business” filers with total incomes over $200,000 get less than a sixth of their total income from a business.

        Individuals who obtain income from businesses that are not small or are only investment vehicles and have no employees. Contrary to claims that the tax increase under the President’s proposal would fall mostly on job creators, the same Treasury study found that only a minority of the filers with business income who would see a tax increase obtain any of that income from a small business with employees.

        Law firm partners, hedge fund managers, and other highly compensated professionals who typically organize their businesses as partnerships. Over half of the 400 highest-income taxpayers in the country have some business income and therefore are counted in the 3 percent.12

        Wealthy individuals whose “small business” is renting out their vacation home or other property.

 Contact: Bob Keener, 617-610-6766, bkeener@asbcouncil.org