Of Top Taxpayers, 1 In 5 A Small Business Owner Scott Horsley talks to Melissa Block about who's in the top two percent of American taxpayers. That group would have their taxes raised if President Obama gets his way in the fiscal cliff negotiations.

Of Top Taxpayers, 1 In 5 A Small Business Owner

Of Top Taxpayers, 1 In 5 A Small Business Owner

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Scott Horsley talks to Melissa Block about who's in the top two percent of American taxpayers. That group would have their taxes raised if President Obama gets his way in the fiscal cliff negotiations.


From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.


And I'm Melissa Block.

One of the big sticking points in negotiations to avoid the fiscal cliff is President Obama's insistence that income tax rates go up for the wealthiest Americans. Most congressional Republicans are against that idea. Here's House Speaker John Boehner yesterday.

REPRESENTATIVE JOHN BOEHNER: Raising taxes on the so-called top 2 percent, half of those taxpayers are small business owners that pay their taxes through their personal income, tax filing every year.

BLOCK: That claim by the House speaker has been challenged before, and we're going to take a closer look at it now with NPR's Scott Horsley.

And, Scott, this is something that John Boehner has said repeatedly, that half of top earners in the country are small business owners. He's also been repeatedly corrected on this by fact-checkers. What's the truth here?

SCOTT HORSLEY, BYLINE: You're right, Melissa. The speaker's office says that John Boehner misspoke yesterday, although it is a misstatement that he's made more than once. It is a variation on another GOP talking point, which is that half of all small business income is taxed at those top two rates. That's according to a study by the Joint Committee on Taxation. But that's using a very broad definition of small business. It also includes a lot of law firm partners and hedge fund managers.

Last year, there were some analysts at the Treasury Department who tried to take a closer look at how many top earners really meet the public's idea of a small business. So they threw out all those who were making more than $10 million. At the other end, they threw out people who might have a big salary from a day job and then a little small business on the side.

And when they narrowed the definition that way, what they found was about one in five taxpayers in those top two brackets is a small business owner. And of all the income in those brackets that would be taxed at a higher rate, only about 7 percent comes from small businesses.

BLOCK: And small businesses, again, defined as those making up to $10 million.

HORSLEY: That's right.

BLOCK: OK. Now, part of this focus on small business, Scott, is because that's supposed to be where a lot of jobs are created. This is another thing that Republicans say time and time again.

HORSLEY: That's right. You aren't going to get a lot of traction just by defending small businesses per se. But when start talking, saying raising tax rates would cost jobs, then the public starts to pay attention. And that's why in Republican lingo wealthy people are invariably described as job creators.

However, the Congressional Budget Office, when they looked at what the job affect of raising those taxes would be, they found it'd really be pretty tiny, about 200,000 jobs over the course of a decade. Now, that sounds like kind of a lot, but it's only about as many jobs as we've been adding in one or two months. So it's a fairly small effect we're talking about.

What Democrats like to point out is that the rates would just be going back to roughly where they were during the Clinton years. And it certainly didn't hurt job creation in that period. In fact, we'd be well off to have job creation like we did in the 1990s.

BLOCK: Well, if only one in five top earners is, in fact, a small business owner, Scott, who are the rest?

HORSLEY: Big business owners, financial professionals, doctors, lawyers, the odd NFL quarterback. And also, a lot of two-income families. Remember, the cutoff to be in one of the top two tax brackets is just over $200,000 for an individual, $250,000 for a couple. So they're not all millionaires and billionaires, as President Obama sometimes says, but they're not all plucky mom-and-pop business owners either.

BLOCK: And if you look at polling on this, Scott, where is the American public on the question of higher rates for the wealthiest Americans?

HORSLEY: The public wants the wealthy to pay more. That was clear in the exit polls. And interestingly, you know, Speaker Boehner's comments came yesterday in response to a Republican congressman who was agreeing with Democrats that we should separate the question of these top tax rates from middle-class tax rates. Democrats say, let's go ahead and preserve the low tax rates for the middle-class and deal with the top 2 percent separately.

Speaker Boehner and most of the Republican leaders are dead set against that. They know that if the top rates have to be considered in isolation, they'll lose and those rates will go up.

BLOCK: OK. NPR's Scott Horsley at the White House. Scott, thanks so much.

HORSLEY: You're welcome.

BLOCK: And as budget negotiations between Democrats and Republicans are muddling your mind a bit, with all the talk of tax rates and debt commissions and deduction caps, red lines, lines in the sand, we'd like to help you make sense of it all.

SIEGEL: Send us your questions about the fiscal cliff, how it might affect you, and what might be done to avoid it. Go to npr.org, click on Contact Us at the bottom of the page, and please put fiscal cliff in your subject line.

BLOCK: Next week, we'll try to answer some of your questions on the air.

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