There are five basic legal forms of business structures found in the United States: C corporations, S corporations, sole proprietorships, partnerships, and Limited Liability Companies (LLCs). In order to understand...
- The Tax Policy Blog
- Rightchange.com Running False Ads Attacking Obama on Taxes
Rightchange.com Running False Ads Attacking Obama on Taxes
The amount of misinformation in this campaign from both candidates is bad enough. Now we have an anti-Obama organization called Rightchange.com spreading nonsense about Sen. Obama's tax plan. I saw tonight a brand new ad on cable television that the organization is running which says that Barack Obama wants a 35 percent tax rate for Wall Street but wants small businesses to pay a tax rate of 62 percent. Here is the ad courtesy of NPR:
This is so ridiculous that I'm almost at a loss for words. First, the "keep only 38 cents of every dollar they earn" statement is an outright lie. The 62 cent figure comes from the highest possible marginal tax rate that a small business could face under Obama, and even that makes the incorrect assumption that Obama would raise payroll taxes on those beyond the cap by 12.4 points instead of 4 points. Marginal is not the same as average, and using the phrase "every dollar they earn" makes it factually incorrect. The people behind this ad are either downright deceitful or too stupid to understand the difference; and given what else they are putting out (see below), I don't know which it is. But the reality is that no small business would pay 62 percent of its total income to the IRS under Obama's tax plan.
Now on the small business versus Wall Street claim, there are more errors. Reality is that the tax rate on non-corporate capital investment is typically much lower than the rate on corporate investment because of the double taxation on corporate investment. So a "Wall Street" corporation that pays a 35 percent tax rate distributes the after-tax profit to shareholders through either retained earnings or dividends, and the shareholders then must pay tax on that income in the individual tax code. So a corporate income tax is paid by people, just like a tax on "small business." It's just that the small business income is only taxed once under the income tax, while corporate income tax is taxed at two levels.
But overall, comparing the top corporate marginal tax rate to the tax rate paid by a "small business" filing in the individual income tax is like comparing apples and oranges.
Even Boskin's own Wall Street Journal editorial shows that when you account for the double taxation, the top statutory combined corporate marginal rate wouldn't be much different than the statutory small business rate under Obama once you take out the 12.4 point hike and replace it with his 4 point proposal and even if you adjusted for Obama's revised position on cap gains/dividends (i.e. accounting for the tax on after-tax return).
Now I guess this shouldn't surprise us coming from an organization like this. Looking at its website, we see that it contains even more misinformation on Obama and taxes. Case in point: it makes this "Tax Freedom Day-esque" critique of Sen. Obama's tax plan:
It will take 227 days per year, nearly 8 months, just to pay your tax bill!
What is their source, you ask? Rightchange.com's own calculations. This is just an outright, nonsensical lie. The 227 days amounts to 62 percent of the year, which they get from Michael Boskin's op-ed, which argued that under certain circumstances, a person's marginal tax rate could be 62 percent under Obama's tax plan (assuming payroll tax rates increase by over 12 percent as opposed to 4 percent). But it's just ridiculous because that is the marginal rate (tax on the next dollar of income), not an average rate. Also, it doesn't count other income sources. (AGI is a fairly narrow source of income.) Now it is true that it doesn't include other taxes like property or sales, but given that Tax Freedom Day in 2008 was only about 31 percent (that is, it covered 31 percent of the year, which equals a 31% tax burden), implying that Barack Obama is going to double that is pure lunacy. Such a move would be political suicide.
Subscribe to the Tax Foundation Newsletter
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.