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WSJ: The 97% Fallacy

September 03, 2010

Supporters of increasing the rates at the top two brackets like to say that it will only affect 3%, or 2%, of "small" businesses. An opinion piece in the Wall Street Journal explains why that is an absurd talking point:

The 3% figure, which is computed from IRS data, is based on simply counting the number of returns with any pass-through business income. So, if somebody makes a little money selling products on eBay and reports that income on Schedule C of their tax return, they are counted as a small business. The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes.

The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That's the number to look at, not the 3%.

That's a point I've been making.

Related: DEPARTMENT OF MEANINGLESS STATISTICS

Tags: tax policy.

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