Press Item ● Jobs and Economy
For Immediate Release: 
September 16, 2010
Contact Info: 
Peter Cohn

Congress Daily

 Meet the new faces of the GOP's definition of "small businesses" that would be affected by looming tax increases on households earning more than $250,000 under the Democrats' tax plans.

They are leveraged-buyout firm Kohlberg Kravis Roberts & Co., with $55 billion in assets under management, 600 employees and 14 offices around the world; Enterprise GP Holdings, a pipeline operator with $26 billion in 2009 revenues; and accounting powerhouse PricewaterhouseCoopers, also with $26 billion in revenues and more than 160,000 employees in 151 countries.

Those firms have structured themselves as partnerships under the tax code, which are "pass-through" entities, meaning partners' profits are taxed at the individual level and the firm does not pay corporate-level tax. House Democrats are using those companies in an attempt to debunk claims by Minority Leader Boehner and others that half of "small-business" income will be taxed at higher rates next year.

"Washington Republicans are peddling bogus facts and figures and using small-business owners as political scapegoats because they can't defend holding hostage tax relief for middle class families in order to give billionaires a permanent bailout," said Doug Thornell, a spokesman for Democratic Congressional Campaign Committee Chairman Chris Van Hollen of Maryland.

Democrats are responding to Joint Committee on Taxation figures showing that 3 percent of individual tax filers will report enough business income to be hit with the higher tax rates. Those 3 percent are responsible for half of all of the estimated net business income in 2011, expected to total about $1 trillion.

Because they are not taxed as regular corporations, pass-through businesses -- which also include sole proprietorships and subchapter S corporations -- have consistently been lumped in as "small businesses" in the debate over the Bush tax cuts. "Well, it may be 3 percent, but it's half of small-business income. Because, obviously, the top 3 percent have half of the gross income for those companies that we would term small businesses," Boehner said on "Face the Nation" Sunday.

Democrats point to big investment funds, law firms and others as evidence many of those businesses could not be small -- particularly if only 3 percent of them account for roughly $500 billion in net income.

Republicans point to statistics from the National Federation of Independent Business that 75 percent of their members are organized as pass-through entities, however, and from the National Association of Manufacturers that 68 percent of their members are. In fact, IRS data show that sizeable chunks of pass-through income are reported by firms in the manufacturing, construction, retail, health care and other sectors.

"With more than 30 Democrats in the House coming out publicly today for stopping all of the planned Democratic tax hikes, I can see why their leadership might be desperate to hide the impact on the tax hike on small business," a Boehner spokesman said. "But the American people know the truth -- the last thing we need in this struggling economy is a tax hike on the engine of job creation."