Last night’s Presidential debate featured some of the usual nonsense from Mitt Romney. President Barack Obama plans to end the Bush tax cuts but only for people earning in excess of $250,000 by restoring the top marginal rate to the 39.6% it was under President Bill Clinton instead of the 35% it is now. The Mittster is freaked out because of the adverse effect this will have on small business owners.

Well, this is one freak show rated PG, not XXX. The fact is, as the Adninistration has consistently maintained, that only 3% of small businesses would be affected by this change.

That has been the conclusion of the Joint Committee on Taxation and even House Speaker John Boehner has conceded the point. In an appearance on CBS Face The Nation he stated

Well, it may be three percent, but it’s half of small business income. Because, obviously, the top three percent have half of the gross income for those companies that we would term small businesses. And this is why you don’t want to punish these people at a time when you have a weak economy.

One might find the second part of his statement alarming, i.e. that the 3% has half of all small business income. But his words simply belie the point that those small businesses are not so small after all.

For instance small business has more to do with the type of business organization it is rather than mere size. So the Koch Brothers, operating at least some of their enterprises as private entities, not corporations, have a “small” business with 75,000 employees.

I imagine that little mom and pop shoe store is pretty damned crowded, doncha think?

In today’s Post-Gazette, Pa. Senator Pat Toomey pleads his case to leave small businesses alone.

His argument is oh so eloquent and logical until it comes crashing down around him, as if a 7.9 Richter Scale earthquake had its epicenter right beneath his feet.

Toomey presents two prime examples illustrating his rationale. The first, Richardson Cooling Packages, is based in New Castle, Pa.

Despite the economic downturn, Richardson has continued to thrive, expanding its business and hiring 35 new employees over the past year, bringing its workforce to 80. But company president David Richards is emphatic that “there is no way we could have done this if the president’s tax policies had been enacted. … We pay about 40 percent in taxes. That is money that we cannot use to grow. We need our working capital to remain competitive”

The pity party will begin soon, Mr. Richards. But not before I inform you that you are organized as an LL.C. That means that profits are distributed to the members per their share of ownership and taxed as individual income.

Unless it isn’t. Our tax code provides that, if an LL.C. wishes to treat some of that profit as retained earnings (usually for the purpose of paying debt or reinvesting into the business) it may elect to be taxed as a corporation. So not only will the unddistributed income not be taxed, the first $75,000 of income to each member is taxed at the corporate rate which for those amounts is less than the individual rate.

So Mr. Richards is either being disingenuous or he has the worst tax accountants in the country.

The second company Toomey cited is Precision Medical which is a CORPORATION. So its profits are taxed as a corporation with all the attendant benefits. In other words the “owners” will pay income tax only on what they receive as income whether it be salary, bonuses or dividends.

Let me address dividends for a moment. The reasoning goes that dividends are paid to individuals from corporations AFTER the corporate profits, if any, have already been taxed. Since the shareholders own the corporation, taxing their dividends amounts to double taxation.

If only it were so. General Electric, Co. is one of 30 corporations that paid no U.S. income tax for 2008-2010.

General Electric has paid a dividend each quarter for over 100 years.

Furthermore, at present qualified dividends (most of them) are taxed at much lower capital gains rates than individual ones. That has been the law since the initiation of the Bush tax cuts but for most of the income tax’s existence dividends have been taxed as ordinary income. See chart.

Look folks, I’ve had a basic accounting course and had a taxation class in Law School. When dealing with my clients as a lawyer I was usually aware of when they might have tax consequences for their actions but would refer them to an expert, which I am not, for the necessary advice.

But these facts I am using are readily ascertainable from public sources.

In light of Toomey’s and Romney’s statements on taxes it appears the tax they need fear most is the imposition of one on lies.

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