Obama and Small Business

I wrote about Barack Obama's Small Business Tax plan once already back in August, but it's clear to me from comments I've seen members of the public make on the internet and on television that many voters, including small business owners and independent contractors, are still confused about how Obama's economic policy plans will affect the small-time entrepreneurs that drive a large part of the American economy.   

Many McCain supporters assert that most small businesses would be negatively affected by Obama's plans to let the Bush tax cuts expire and revert to Clinton-era tax rates for those with an income of over $200,000 a year (for individuals) or $250,000 a year (for families).

However, those who make this assertion sincerely seem to be confusing revenue with income. While many small businesses do earn yearly revenues of $250,000 or more, once business expenses for equipment, goods, and payroll are subtracted, far fewer small business owners actually have a personal income of $250,000 or more each year. And Obama's rollback of the Bush tax cuts for individuals earning over $200,000 a year and families earning over $250,000 per year will only apply to income.

In fact, Factcheck.org reported in July that under the Obama tax plan, "We find that the overwhelming majority of those small-business owners would see no increase, because they earn too little to be affected."

The Obama campaign has actually published quite a bit of detailed information on the Obama-Biden economic plan on BarackObama.com. The campaign specifically outlines plans to promoting economic growth by supporting small businesses, proposing:

• A small business health care tax credit. One of the fastest growing expenses for American business today is company health insurance; Obama plans to offer a refundable credit of up to 50 percent on health care premiums paid by small businesses on behalf of their employees.

• Access to a low-cost national health insurance exchange. Again, this would help reduce the cost of providing small business employees with health insurance. Many small businesses pay higher health care premiums for their employees than larger businesses do, because small businesses lack the collective bargaining power of larger corporations. Obama hopes to level the playing field for small businesses by allowing them to band together in a national insurance pool.

• Access to catastrophic health care cost reinsurance. Obama wants to create a government reinsurance program that would protect small businesses against catastrophic health care costs in the event of an insured employee's serious illness or injury.

• A $500 "Making Work Pay" tax credit. An expansion of the existing Earned Income Tax Credit. Obama plans to expand the EITC to include middle class individuals and families in addition to the working-class families it already covers. This individual income tax credit would apply to both employees and self-employed workers, including small business owners, under a certain income level.

• A capital gains tax exemption for startups. In order to promote new business growth, Obama plans to exempt start-up businesses from capital gains taxes. (As far as I know, he has not yet stated specifically how long a new small business would benefit from this exemption.)

• A new national network of public-private small business incubators. Obama has proposed a network of small business incubators that would provide temporary space for new businesses and help new entrepreneurs design a successful business plan.

• An expanded federal small business loan program. Obama wants to simplify the process of obtaining start up loans and microloans for small business owners.

• Access to increased research and development funding. Obama hopes to double federal funding for research as part of his plan to transform the economy and promote new green energy technologies.

Obama has also repeatedly stated that he plans to close tax loopholes that make it cheaper for some large corporations to outsource jobs overseas; theoretically, this would help small and start-up businesses employing American workers and producing products or services on American soil compete with large corporations.

In response to the current global financial crisis, Senators Obama and Biden recently released a new policy paper detailing a "Small Business Emergency Rescue Plan." The plan calls for the following emergency measures to help small businesses weather the financial storm:

• Authorize the Small Business Administration to make emergency loans to small businesses unable to obtain private loans at reasonable rates due to the current credit crisis.

• Provide temporary tax incentives targeted at small businesses to encourage job growth.

• Eliminate the capital gains tax on investments in small businesses.

As an independent freelance writer, I myself would benefit from lower taxes and access to cheaper health insurance under Obama's economic proposals. Most small business owners and independent contractors would— including Joe the Plumber.

Curious about what qualifies as a small business? Obama himself has yet to specify, but the federal government defines a small business as one employing less than 500 workers.

Comments

[Beth Terry, aka Fake Plastic Fish]

Thank you for this post! As an accountant, I am really frustrated by the widespread misunderstanding of the difference between gross profits and net income and how many people believe that if their gross profits are over $250,000, their taxes will go up under Obama's plan. I spent several hours the other night listening to one caller after another on a radio show complaining about how their small businesses would suffer because of this, and I tried the entire time to get through to explain to the callers and the DJ, but no luck.

I wish the Obama campaign were making this point more clear to people. Those business owners who actually do go out and create more jobs with their profits instead of pocketing all of it are not going to see their taxes increase!

[Donna]

Thank you for this reminder, Jaelithe. This is important for all those "Joe Sixpacks" out there who are scared of McCain-Palin's lies on this subject.

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