What Are The Facts in the Tax Debate?

Democrats and Republicans are in the midst of what my Dad used to call a 'knock-down, drag out fight' over whether to extend the Bush tax cuts for individuals who make more than $200,000 a year or families that make more than $250,000 a year. The problem is that also would hit many small and medium-sized businesses which are the most likely source of new jobs for the nation. Democrats argue, as Senator Richard Durbin, D- Ill., did this week on the Senate floor, that the tax increases on business owners that file as individuals are not a big deal.

"Do you know how many small business owners are in that category?, he asked. "Three percent. And it includes some doctors, some lawyers, and the like."

Republicans counter that although it is only three percent of the total, that turns out to be a pretty big number.

"How many people does it apply to?, asked Senator Jon Kyl, R-Ariz., in a speech on the floor. "Almost 750,000 people," he said, pointing to data from the nonpartisan Joint Tax Committee in Congress.

Aside from those two arguments, what do the facts say? Some recent research sheds new light on the question. And it supports the argument that potential sources of job creation would in fact be hit by elimination of the Bush tax cuts for those with higher incomes.

The National Federation of Independent Business surveyed its members. Chief Economist Bill Rys says they found that the businesses "most likely to be hit by those tax increases are businesses that employ between 20 and 250 workers. Those businesses account for about a quarter of the American workforce," he says.

Not only that, but many argue these are the most successful and productive small and medium-sized concerns in the nation and therefore the most likely to create new jobs.

"Those are the businesses that are most likely to be hiring," says Bill Rys, "most likely to be making new investments and a tax increase means that's less money that those businesses have to spend on growing their business and more money that they're sending to Washington."

And Scott Hodge of the Tax Foundation believes "these are clearly job creators. These are the healthy, thriving businesses that we're asking to revive the American economy from its doldrums." Hodge cites government data which shows that "taxpayers earning over $200,000 a year earn 68 percent of all private business income in the United States in 2008. And they will be disproportionately affected by the taxes on high income people."

Democrats are unpersuaded to say the least. Speaker Nancy Pelosi's office blasted the arguments above in a statement, saying "Included in that small percentage of 'small businesses' affected (2-3 percent) is anyone who receives any type of partnership or business income - and many of them are not what you would consider "small business owners." They include hedge fund managers, private equity fund managers, owners of privately held multinational companies, lobbyists, and partners in major law firms."

Some opponents of the tax increases say no one knows if the businesses are small -- only that they are big job creators. "These are the most successful businesses in the country, says Scott Hodge of the Tax Foundation. "These are the mom and pop shops that have now grown up and become successful thriving businesses. And the last thing you want to do during an economic downturn is raise their taxes and force them to cut their cash flow in order to pay Uncle Sam."

And late Wednesday, the Chamber of Commerce weighed in as well. "At a time when we are experiencing lackluster economic growth, raising taxes on small businesses makes no sense," said Bruce Josten, executive vice president for Government Affairs at the U.S. Chamber. "Unless Congress acts, the people in the cross-hairs of the largest tax increase in history will be small businesses."

Actually, an increasing number of Democrats in both the House and the Senate are making the same argument. But the Pelosi statement puts it all on one party. "Republicans are using this "small business" myth to distract from their demand for a permanent extension of tax cuts for the wealthiest Americans..."

So the argument continues. Democrats point to some polls and claim to be gaining ground in with the public, even as they appear to be losing ground among Democrats -- now that several Democratic Senators are saying all the tax cuts should be extended at least until the economy is on firmer ground.

That is a thought for the President. If he succeeds in only extending those for middle income and below, and job creation does not gain speed, there will be plenty of people, some in his own party, who will blame his policy on the tax cuts for pouring cold water on a struggling recovery.

Jim Angle currently serves as chief national correspondent for Fox News Channel (FNC). He joined FNC in 1996 as a senior White House correspondent.