Courting Small Business
Elisabeth Bumiller and Jack Healy report on John McCain’s bizarre “Joe the Plumber” tour:
Mr. McCain infused a populist note into his speech in Ormond Beach, looking at the candidates’ competing tax plans through the lens of how each would affect small businesses. He said Mr. Obama would raise taxes on small-business owners, stifling job growth and sending the economy into a deeper recession.
“We shouldn’t be taxing our small businesses more as Senator Obama wants to do,” Mr. McCainsaid. “Senator Obama wants to spread the wealth around. That means fewer jobs at their businesses and fewer jobs here in Florida.”
As a matter of substance, I always find some of the rhetoric around small business puzzling. You’ll have a dialogue where someone proposes something he thinks will be a good idea. Then someone counters, “well it’ll be bad for small business!” and that’s treated like a devastating refutation. But there’s no particular reason why helping small business should be the goal of public policy.
Meanwhile, politically people should understand that small business owners are the most Republican-leaning occupational category:
Indeed, owners and proprietors show a larger partisan tilt than any other occupational category voting in recent elections 15-20 percent more Republican than the average voter.
44 Responses to “Courting Small Business”
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October 23rd, 2008 at 4:16 pm
The rhetoric isn’t puzzling so much as mendacious.
The argument appears to be that increasing taxes on small businesses earning more than $250K will impair growth and job creation (by moving the marginal rate from 36 to a somehow confiscatory 39%). But if a profitable small business reinvests in equipment or new jobs then that investment ceases to be profits and becomes a tax-deductible expense, so that increasing taxes on profits should have zero impact on these decisions.
October 23rd, 2008 at 4:21 pm
Anyone who thinks a plumbing company owner is some kind of sympathetic character, worthy of special treatment, either has never paid for plumbing work, or is too rich to have looked at the amount on the check he wrote.
October 23rd, 2008 at 4:22 pm
“The rhetoric isn’t puzzling so much as mendacious.” That’s right, and it’s the same rhetoric whether we’re talking about small businesses, family farms, the death tax, the Bush tax cut’s supposed average payout, whatever. You can’t say, we support handouts to the rich and corporate America. So you say it’s for average guys, with the Democrats favoring the true quote-unquote elites.
This has the advantage, too, of tying into a central myth that helps sustain a pro-business agenda: the Horatio Alger, anyone can make it, story. You may not be able to purchase a business taking in a quarter of a million a year, but you can almost taste it already, right?
October 23rd, 2008 at 4:25 pm
McKingford:
Wrong. The point of business investment is to earn a _future_ profit. So if you tax the profits from the investment then you reduce the incentive to make the investment in the first place. This isn’t wacky supply-siderism, it’s just basic econ. Please know what you’re talking about before accusing people of mendacity.
I’m not a shill for the Chamber of Commerce. It’s just that here in the reality-based community we believe that facts are not partisan.
October 23rd, 2008 at 4:27 pm
Thanks. I’ve been lackadaisically gathering data on sole proprietors since Joe the Plumber surfaced and was ridiculed by many on the left. It dawned on me that it was a demographic that is underappreciated in the Democratic scheme of things. A large one. Of likely voters. According to Wikipedia:
“There are more than 23.5 million business firms in the US today. Of these, more than 18 million are small businesses owned by one person.”
Seems like it would be worthwhile to try to understand this group a little better.
October 23rd, 2008 at 4:28 pm
I can’t believe Matt wrote this: “But there’s no particular reason why helping small business should be the goal of public policy.”
Seriously? Small business is important in so many ways — for employment, for the health of small communities, for competition, for innovation.
If the owners of small businesses vote against us, then we need to figure out why and fix it, not dismiss their concerns.
October 23rd, 2008 at 4:30 pm
Hey – all this red meat turf is Coulter’s turf. WHere is she? ANyone know? I’ve been waiting for her unique insanity to rear its head for months. She’s been quiet, but it doesn’t make any sense…
October 23rd, 2008 at 4:33 pm
Not to malign everyone but the average “Joe the plumber” is probably cheating on his tax return anyway.
October 23rd, 2008 at 4:42 pm
What DCreader and Rachel Q said.
But you need to draw it out a bit more and realize that big businesses are also important, which is why cutting the corporate tax rate will stimulate jobs, investment, and growth. Focusing on small business is just a politically friendlier way of making the point.
October 23rd, 2008 at 4:48 pm
Spoken like someone who hasn’t just bought hundreds of thousands of dollars worth of equipment only to find out it’s depreciated in such a way that despite the expenditure they do count as having huge profits to the IRS even if none of it ends up in their pocketbook.
October 23rd, 2008 at 4:49 pm
But Right, the objective of policy then is better or more jobs, more economic growth, etc. not really small businesses (which are simply a tool to get that). ¿Is there any real evidence that small businesses are better at providing employment or creating economic growth than big businesses?
October 23rd, 2008 at 4:57 pm
DCreader -
The McCain camp and its allies use language like “can’t afford” to make these investments if the marginal rate goes from 36 to 39%. This is simply false, and implies that investments come out profits that will be taxed too much to as to allow reinvestments. That was the point I was addressing.
Because of the hodgepodge of varying tax rates on income, investment, dividends and capital gains, your argument is that those profits might better be invested in something else – which is a different one than what is being advanced at the moment, and which might be foreclosed if there was a more balanced tax scheme.
October 23rd, 2008 at 5:06 pm
It’s really not that puzzling.a
1) Small business owners are very likely to donate relatively large sums of money to the party/candidate they think will favour their interests.
2) It’s fairly easy to construct a populist sounding Republican message by talking up small business, as opposed to big business.
3) Lots of people work for small businesses. Even if they personally would do better under a given tax plan, they might vote against it for fear of job security.
October 23rd, 2008 at 5:15 pm
If we had a lottery to kill off 1% of us evil parasites who just earn salaries or wages rather than starting a business, that would stimulate the creation of small businesses.
October 23rd, 2008 at 5:22 pm
Of course the Republicans are wrong about what Obama actually means, but Matt… “there’s no particular reason why helping small business should be the goal of public policy.”
1. Well I’d rather that was the goal of public policy, rather than explicitly and persistently aiding huge businesses, which has been the unambiguous policy objective of governments since… almost ever. And has of course made the country great because we all know trickle-down economics works.
2. I regularly have this argument with my mother at Christmas. I always tend to be on the side of “it’s who does it better rather than who does it”. But that does seem like a naive position given the actual power imbalances between differently-sized companies. Also, having recently moved to a country where small businesses continue to thrive, at least relatively speaking, it’s just nice to actually have them.
3. There are increasingly strong environmental arguments for localism.
What I’d seriously like to know is, more: where do small businesses fit into the Yglesias policy model?
October 23rd, 2008 at 5:22 pm
But Right, the objective of policy then is better or more jobs, more economic growth, etc. not really small businesses (which are simply a tool to get that). ¿Is there any real evidence that small businesses are better at providing employment or creating economic growth than big businesses?
I’m not sure. My point is in practical terms it’s the same for businesses large and small, and it’s easier politically to argue on behalf of the little guy in particular, instead of Pfizer, AT&T, and ExxonMobil, while promoting policies that will help all of them grow.
October 23rd, 2008 at 5:48 pm
My point is in practical terms it’s the same for businesses large and small, and it’s easier politically to argue on behalf of the little guy in particular, instead of Pfizer, AT&T, and ExxonMobil, while promoting policies that will help all of them grow.
This brings up the heretofore unexamined question of what counts as a “small business?” It seems in common parlance and in formulations like “Joe the Plumber” people have small mom-and-pop operations in mind, but the notion of “owners and proprietors” (as in the graphs above) takes in things like doctors, realtors, automobile dealers,and beer wholesalers(!) who (just name a few) have large industry associations (i.e., lobbyists and PACs) that have tremendous clout on Capitol Hill and many State capitals. These associations hand out more money and arguably have more clout than the PACs of many large Fortune 500 companies.
October 23rd, 2008 at 6:09 pm
This brings up the heretofore unexamined question of what counts as a “small business?”
Exactly. On the flipside, if you’re extending that out to the self-employed or small startup-type enterprises, then healthcare reform to provide pooled alternatives to the individual market is probably a bigger issue than tax schedules. In a country with universal healthcare, a sick freelancer may not be able to earn, but he/she won’t end up spending a chunk of the year’s profits to cover the deductible on an individual plan (or put you in the hole for ten years if uninsured).
October 23rd, 2008 at 6:16 pm
If I were (bear with me here, I do have a point) to paint every surface of my house, inside and outside, fire-engine red, what would I learn?
I would learn which of my friends couldn’t stand red, because they wouldn’t come around any more.
Unaccountability is a color.
If you create an environment of unaccountability, only those people who like to be unaccountable will stick around; everyone else will drift away.
Small business has been made unaccountable. It should be no surprise that Republicans gravitate to an unaccountable environment.
October 23rd, 2008 at 8:04 pm
Exactly. On the flipside, if you’re extending that out to the self-employed or small startup-type enterprises, then healthcare reform to provide pooled alternatives to the individual market is probably a bigger issue than tax schedules.
YES!! A subject near and dear to my own pocketbook. And given the ongoing long-term structural changes to the job landscape, the availability of “pooled alternatives” could be not just the equivalent of a big tax cut to truly small businesses, but would free-up a lot of people who cling to a suboptimal job situations or avoid taking an “entrepreneurial” plunge just to keep their health insurance.
October 23rd, 2008 at 8:15 pm
I think the reason is simple: Small business owners are some of the most conservative people in the country. A guy who owns a dry cleaning store makes a corporate CEO look like Herbert Marcuse.
October 23rd, 2008 at 8:16 pm
Small business owners are mostly Republican (or Libertarian) because they do not have taxes withheld but have to write quarterly checks to the IRS. They also have to pay the second half of SS and Medicare taxes quarterly. Many have had very bad experiences dealing with late tax payments. They also have to deal with often infuriating government agencies for licensing, safety, unemployment taxes, etc. Small business owners often hate government on every level and vote for the party they hope will give them some promise of relief. Not so hard to figure if you have ever owned a small business.
October 23rd, 2008 at 8:27 pm
Interesting insights on this here:
http://tinyurl.com/5rdg88
October 23rd, 2008 at 9:39 pm
According to 2006 statistics, less that 2% of households make $250K or more. That includes small business owners, professionals, company executives and CEOs, Wall Street traders and other fat-bonus employees, etc.
It’s hard to understand why the press (and the Obama campaign as well) hasn’t been pointing out, with each mention of Joe the plumber, that he belongs to this very small, affluent group. Obama should be saying that emphasis on JtP PROVES that McCain’s policies are intended to benefit only the rich.
October 23rd, 2008 at 9:47 pm
Th: I think you’re probably right about this:
Small business owners are mostly Republican (or Libertarian) because they do not have taxes withheld but have to write quarterly checks to the IRS
but (as someone involved in a *very* small business) I have to agree with pseudonymous in nc and Tom that healthcare reform — specifically, being able to get access to a bigger pool — *should* be more of an issue for small businesses. My experience is that how to get health insurance has dominated the “should I start my own business/go freelance” decision for the last 10 years at least.
I don’t know why this isn’t having more of a political effect, to at least partially counterbalance the emotional effect of paying taxes 4 times a year, as noted by Th.
October 24th, 2008 at 5:23 am
I think Th nails it as to why small business owners tend to be more Republican: They’re the ones most irritated by regulations.
Big companies have already gone through the pain of setting up procedures to deal with regulations. In the case of sweeping new regulations they already have personnel and their support systems in place to adjust.
Small companies don’t have staff to spare, and so it’s *the owner* trying to read through IRS docs 4 times a year, and land-use regs when they want to move to a bigger building, and environmental regs when they change cleaning solvents, and etc. It’s all new to them and it’s taking time away from making money.
October 24th, 2008 at 5:27 am
Also, to add to what I said above:
If your whole job is dealing with, say, environmental regs, (as in a staff position with a larger company) you’re more likely to understand *why* they were put in place and be more sympathetic to them, even if they’re a pain to deal with.
If your job is something else entirely (as a small business owner) but you have to deal with the regs, you don’t have time to understand what they’re supposed to do, and so you’re only going to see the personal pain and not the societal benefit.
October 24th, 2008 at 8:17 am
I think the key here–and it’s why Joe the Plumber is the perfect Republican–is that these are people who think they make WAY more money than they actually do.
“I’m going to cut taxes on people making $100,000 and raise taxes on people making more than $250,000.”
“Don’t raise my taxes!”
“How much do you make?”
“$100,000. But I’d really like to make $250,000!”
I think it’s more electorally efficient to ridicule these people than to court them.
October 24th, 2008 at 10:53 am
It’s too bad this is so far down on the comment thread that nobody will answer it. But I’m a small business owner and really do have a tax problem. Specifically, I own an LLC that has about a dozen employees. The nature of my business is cyclical but my employees’ salaries aren’t. Consequently I need to maintain a bank balance in order to keep them paid during those rough times.
The problem is that the current tax structure treats any income beyond expenses as “profit”, even if I don’t take it out of the company. That means any attempt to build a fund within the company /purely/ to cover operations costs gets taxed like crazy, provided that I don’t spend the money before the end of the tax year.
Worse, since I run an LLC, this “profit” passes through and gets taxed as my personal income — even if I don’t actually take it home. That puts me into the category of “people who make over $250k/yr and will see further tax increases”, even though my true take-home income is way less than $250k. It makes it really hard to build up a safe reserve of cash to keep my business going.
If the candidates really wanted to help small business, here’s what I would like to see: some mechanism by which a company can defer taxes on a limited “rainy day fund” /provided/ that this money is kept within the company and not taken out. Basically what I need is a way to deal with the business cycle of my company, which can often be longer than the artificial tax year.
October 24th, 2008 at 12:16 pm
Matt, this is another area where good policies could make a long-term difference in how the Democratic party is viewed by small business owners. Those who solve your problem by taking the money as it is earned and use a line of credit to allay the cyclical nature of your business are rewarded while hoarding cash is discouraged. I think the best way for the Dems to gain additional support among small business owners is in tax policy changes. An easier filing and payment protocol between businesses and the IRS on withheld taxes with options for more flexible schedules to better fit business cycles would be a good start. Pull the thorn out of my paw and I will be appreciative.
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