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Moving beyond "you didn't build that"

BY DI EDITORIAL BOARD | AUGUST 29, 2012 6:30 AM

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President Obama returned to the Hawkeye State on Tuesday to stump in Ames. Unfortunately, but expectedly, absent from the president’s remarks were a discussion of his tax plan and its potential effects on small business.

While Obama has largely avoided discussing his relationship with small business of late, the GOP nominee Mitt Romney has hit the president hard over the last several weeks for being anti-business, citing comments Obama made in Virginia last month, “if you have a business – you didn’t build that. Somebody else made that happen.”

The “you didn’t build that” controversy has become a rallying point for the Republicans trying to paint the president as an enemy of entrepreneurship and a champion of government intervention.
Neither Romney nor the Republican National Committee seem to care that, when heard in context, the “that” in “you didn’t build that” refers to American infrastructure, not to an individual’s business.    

During a campaign stop in Bettendorf last week, Romney appeared onstage alongside supporters in shirts that read, “Government didn’t build my business, I did.” Tuesday at the Republican National Convention had the defiant theme “We Built This.”

Romney has made the politically cynical decision to capitalize on a lie rather than engage the president directly on the subject of his plans for boosting small business and entrepreneurship. Romney’s fantastical PR campaign has deprived the public of a crucial policy debate about the relationship between small business and the government, an issue on which Obama is weak.

The president’s tax plan calls for the partial expiration of the Bush-era tax cuts, which would increase the top two marginal income-tax rates from 33 percent to 36 percent and 35 percent to 39.6 percent for individuals making more than $250,000.

Because small businesses are typically classified under federal law as S corporations (corporations with no more than 100 shareholders), partnerships, or sole proprietorships, they do not have to pay the corporate tax rate. Instead, small-business profits are treated as taxable income for those partners and shareholders receiving a cut of the money.

A study conducted by the firm Ernst & Young on behalf of a number of organizations, including the National Federation of Independent Businesses and the U.S. Chamber of Commerce, found that Obama’s tax plan would raise the average marginal tax rate on many facets of small business, including a 6.4 percent hike on income. Such tax increases, the study argues, would have a deleterious effect on business productivity, employment, and investment.

A contrary study from the Center on Budget Policy and Priorities argues that the expiration of the Bush-era tax cuts would have a far milder effect on small business because only 2.5 percent of small-business owners make enough money to see a tax increase under Obama’s plan.

Despite the data that suggest only a sliver of the small business community would be affected by the Obama plan, small-business owners overwhelmingly prefer Romney to  Obama. A recent poll of 2,000 small-business owners by the largest online small-business community, Manta, showed that 61 percent of the group supports Romney, who has pledged to deeply cut taxes, compared with 26 percent who support Obama.

Obama’s relationship with small business should be scrutinized, but let’s cast aside the absurdity of “You didn’t build that” and demand an honest, substantive conversation about the best way to move forward.


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