Ragbatz

Computation error: Isakson pulled a TRIPLE whammy, and got credit for only a double

In a previous post, I awarded Sen. Johnny Isakson (R-GA) a double-whammy for this statement on allowing the Bush tax rates to expire:

“[I]ncome taxes will rise … . from 35 percent to 39.6 percent where two-thirds of small businesses are taxed.”

Whammy Number 1: Twisting the Grover Norquist factoid that two-thirds of all business income is reported by filers earning more than $250,000 so as to suggest that two-thirds of small businesses would face the increase of which he speaks. Actually, not even 4% of small business owners earn $250,000 per year.

Whammy Number 2: Eliding the distinction between the top marginal rate and the overall rate of tax so as to suggest that the high earning businesses of which he speaks pay federal income taxes of nearly forty percent on all their income.

But I missed a whammy.

Whammy Number 3: Mismatching the $250,000 threshold for the two-thirds marker laid down by Norquist to the $347,000 threshold for the top marginal rate under pre-Bush cut tax rates so as to pump up by yet another notch the apparent proportion of businesses subjected to the forty percent rate. 

Since the income curve has a long tail in the direction of high incomes, it is certain that a large proportion of all incomes above $250,000 fall between $250,000 and $347,000. I’ve not been able to find figures cut precisely to match these numbers, but the percentage of returns reporting incomes of $500,000 or higher is about one-half of one percent.  It seems likely that the percentage of returns reporting incomes of $347,000 or high is in the vicinity of two-thirds of one percent.  If you have more definitive numbers, please link to them in the comment section.

So, here’s the upshot.  Two-thirds of one percent of all small business owners would face a marginal rate of 39.6% on income in excess of $347,000 per year.  

Judges, please give Johnny Isakson full credit for a triple-whammy distortion of Grover Norquist’s dubious-in-its-own-right small business meme.  A mere double-whammy is just not enough to produce a 100-fold misrepresentation.

Waiting for Johnny: tax rates and small business.

When the President put partial extension of the Bush tax cuts into political play earlier this week, he took part of the speech to pre-rebut the inevitable and inevitably false Republican claims that returning to Clinton era rates on income above $250,000 would harm small business and, thereby, job creation. Two years ago, as befits a Republican Senator from the deep red, Johnny Isakson of Georgia penned the most extravagant embellishment of Grover Norquist’s line on this.

The Norquist original correctly notes that about two-thirds of all business income is reported by filers earning more than $250,00 per year. But as pointed out by, e.g.,Ezra Klein, this factoid tells us figure tells us little more than that most business income is earned by the most successful businesses. On the other hand, the latest estimate from the nonpartisan Joint Committee on Taxation gets at the question of what fraction of small business owners have incomes above $250,000; the JCT’s figures are right in line with the President’s claim that 97% of small business taxpayers are below that level. 

Now, here’s Johnny:

“[I]ncome taxes will rise … . from 35 percent to 39.6 percent where two-thirds of small businesses are taxed.”

A double-whammy. Of course, Isakson makes an obvious misconstruction, the one for which Norquist was probably fishing, by converting two-thirds of small business income to two-thirds of small businesses. For bonus obfuscation points, Johnny equates the top marginal rate with the overall tax rate paid.

‘Struth! If Isakson were correct that two out of every three business owners were threatened with paying 40% of their income in federal income tax alone, I’d be up in arms with Obama, too.

What we are actually looking at here is a special outside-the-beltway edition of the original Norquist meme, dumbed down an extra few degrees for a red state audience. Any day now, Johnny Isakson will re-release this particular plate of Grade A bullshit to be digested by the Georgia media. You re-read it here first.