The Truth-O-Meter Says:
Obama

"Under Gov. Romney's definition ... Donald Trump is a small business."

Barack Obama on Wednesday, October 3rd, 2012 in the first presidential debate in Denver

Barack Obama says 'Donald Trump is a small business' in debate

Donald Trump is a tycoon who owns luxury high-rises, builds fancy golf courses and stars in a reality TV show.  Is it also possible that The Donald is actually a small businessman? President Barack Obama says that's how Mitt Romney would treat him.

During the first presidential debate in Denver, Obama attacked Mitt Romney over what constitutes a small business.

"Now, Gov. Romney and I do share a deep interest in encouraging small-business growth," Obama said. "So at the same time that my tax plan has already lowered taxes for 98 percent of families, I also lowered taxes for small businesses 18 times. And what I want to do is continue … the tax cuts that we put into place for small businesses and families."

Obama continued, "We do have a difference, though, when it comes to definitions of small business. Now, under my plan, 97 percent of small businesses would not see their income taxes go up. Gov. Romney says, well, those top 3 percent, they’re the job creators. They’d be burdened. But under Gov. Romney’s definition, there are a whole bunch of millionaires and billionaires who are small businesses. Donald Trump is a small business. And I know Donald Trump doesn’t like to think of himself as small anything, but that’s how you define small businesses if you’re getting business income."

The Obama campaign has often tried to remind voters of Romney's relationship with Trump, who has been the most prominent person to question where Obama was born. In TV ads, the Obama campaign has frequently shown a photo of Romney in front of a Trump jet. But was Obama correct when he said that "under Gov. Romney's definition ... Donald Trump is a small business"?

To explore what it means to be a "small business," we'll first discuss whether Trump's companies meet the definition set by the Small Business Administration. Then we'll examine whether Trump would be eligible for a small business tax cut under Romney’s plan.

Does Trump qualify as a small businessman?

The definition of "small business" is more complicated than you might think. The most common rule of thumb is 500 employees -- a threshold used "for research purposes" by the Small Business Administration’s Office of Advocacy, an independent advocate for small business within the federal agency.

But for loans and other programs, the SBA uses a more complicated standard. The company has to be independently owned and operated and "not dominant in its field." Depending on the industry, the threshold can be either an average number of employees for the past 12 months or a three-year average of revenues.

For instance, a manufacturing firm could be considered "small" if it has anywhere from 500 to 1500 employees, depending on the type of product manufactured. Service providers would qualify as small if their annual receipts are lower than $2.5 million to $21.5 million, again depending on the particular service being provided. For retailing, the annual receipts threshold ranges from $5 million to $21 million.

So how do Trump’s companies measure up? The Trump Organization didn’t return our queries, but we were able to find a few data points on employment at Trump’s companies. The Trump Organization, the developer’s flagship company, had 22,450 employees in 2007. Several other resort and casino holdings have thousands of employees each, though it’s unclear whether there is overlap among all of these entities. And while there have been disputes over the years about just how much money Trump brings in, it's likely he would exceed any SBA revenue standard.

Now, it's possible that some Trump businesses could still qualify as small by the SBA's definition. According to news reports, Trump has some holdings that are much smaller than 500 employees and have relatively modest revenues. In a story about a tax cut proposal from House Majority Leader Eric Cantor, R-Va., the Huffington Post wrote that Cantor’s cut could benefit "Donald Trump's Trump Tower Sales & Leasing, which has 20 employees and annual sales of about $960,000." CNN reported that "Trump also runs a number of other companies that employ fewer than 500" people.

According to the SBA, however, a small business affiliated with a large business would not be eligible for an SBA-backed loan.

Comparing the Obama and Romney tax plans for small businesses

However, even if Trump managed to meet the technical definition of a small business, it’s not accurate to say that Romney’s tax proposal would treat him as a small business.

This highlights a fundamental difference in the candidates’ approaches to tax policy.

Obama has targeted small businesses by offering at least 16 tax cuts based on a company’s size, frequently limiting the taxes to companies much smaller than the SBA's 500-employee standard. Romney, by contrast, has sought to help small businesses through lower marginal tax rates for individuals. Romney calls lower rates "incentives for job-creating businesses."

It's true that conservatives often contend that tax hikes on high earners would hurt small businesses -- not a surprising strategy, since "entrepreneurs" are a more sympathetic group to most people than "the rich." The Obama campaign backs up the president's Trump claim by arguing that hedge fund partners can count as small businesspeople, and that high-powered tax planning can structure very large enterprises in such a way that they’re considered small businesses. We've concluded in a previous fact check that the connection between high earners and small businesses is exaggerated.

Still, Obama’s attack during the debate was a bit of a red herring. He implies that a "definition" in Romney's plan would give unique treatment to Trump -- or any "small business" -- when the plan simply reduces rates on all individuals, regardless of whether they own a small business.

Other Republicans have advocated targeted small-business tax cuts -- such as the proposal earlier this year by Cantor that "every small business that employs fewer than 500 people" would get a 20 percent tax cut -- but Romney’s main tax proposal is to make a "permanent, across-the-board 20 percent cut in marginal rates." If Romney harbors any plans for targeted tax cuts for small businesses, he hasn’t revealed them.

Why does this matter? Because if Trump ends up getting a cut from Romney, it would be because he’s a taxpayer, not because Romney "defines" him as a small businessman.

Our ruling

Obama said that "under Gov. Romney's definition ... Donald Trump is a small business." But any tax cuts Trump would get from Romney would have nothing to do with whether he’s a small business or not. We rate Obama’s claim False.

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About this statement:

Published: Thursday, October 4th, 2012 at 4:20 p.m.

Subjects: Debates, Small Business, Taxes

Sources:

Barack Obama, transcript of first presidential debate in Denver, Oct. 3, 2012

Mitt Romney, issues web page on taxes, accessed Oct. 4, 2012

Small Business Administration, "What is SBA's definition of a small business concern?," accessed Oct. 4, 2012

CNNMoney, "The 35 largest U.S. private companies, (31. Trump Organization)," May 8, 2008

Bloomberg BusinessWeek, profile of the Trump Organization, accessed Oct. 4, 2012

Roll Call, "Is Oprah a Small Business? In the House, She May Be," Feb 12, 2012

Huffington Post, "Eric Cantor's Proposed Small Business Tax Cut Could Benefit Donald Trump, Oprah," Feb. 17, 2012

White House, "Getting the Facts on Tax Cuts" (blog post), June 6, 2012

CNN, "Fact Check: Is Donald Trump a small business?" Oct. 4, 2012

Inc., "How to Secure an SBA Loan," Apr 30, 2010

PolitiFact, "Lawmaker claims Democrats want to hit small businesses with tax increases," Aug. 4, 2010

Email interview with Emily Cain, press secretary for the Small Business Administration, Oct. 4, 2012

Email interview with William McDowell, professor in the department of management at East Carolina University, Oct. 4, 2012

Written by: Louis Jacobson
Researched by: Louis Jacobson
Edited by: Bill Adair

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