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Tax rates will go up in 2011 unless Congress acts to extend the current rates. Members are talking about voting on the matter before the end of the year.
The sticking point is exactly what a final tax package will look like. President Barack Obama campaigned on making permanent the current rates for the middle class, but raising rates for couples who make more than $250,000 and individuals who make more than $200,000. Most Republicans (and some Democrats) would like to see all the current rates made permanent.
Now various compromise ideas are being floated, with ideas for extending some rates temporarily or attempting reforms of the tax code.
Tea party favorite Rep. Michele Bachmann, R-Minn., told George Stephanopoulos on Good Morning America that she was willing to accept a compromise as long as all the current tax rates stayed the same for taxpayers of all incomes.
But, she said, she opposed a compromise that would be attached to extending unemployment benefits.
Stephanopoulos then asked why it was okay for the wealthy to get their tax cuts extended, but not okay to extend unemployment benefits for the jobless.
"Well, remember again what this is. It's a massive tax increase, and it's on the people who are the job creators," Bachmann said. "And people want to think that these are millionaires, sitting in leather chairs, lighting their cigars with $100 bills. That's not what we're talking about. These are people who, who are carpet layers who maybe employ two or three other guys, or a plumber, maybe himself and his brother, and it's $250,000 in gross sales for their business. They're the ones that are looking at massive tax increases."
That's probably a compelling narrative for Bachmann -- big government taxes the little guys. We first fact-checked similar claims during the 2008 election, when Samuel Joseph Wurzelbacher, aka Joe the Plumber, worried he'd get a tax increase under Obama's plan if he bought a company that took in around $250,000 a year.
It wasn't true then, and it isn't true now. Here's why: Plumbers -- or any other small business owner -- get to deduct their business expenses, so they'd have to be bringing in more than $250,000 in gross sales. The tax laws allow small business owners to deduct all kinds of business expenses: employees' pay, supplies, a car or truck, fuel costs, advertising, association dues, utilities, shop repairs, and the list goes on. (For more details, read chapter 8 of the Tax Guide for Small Business published by the IRS.)
Bachmann said that the tax increases kick in at "$250,000 in gross sales," which traditionally means total sales at invoice values, or everything the plumbers billed. And, she said the plumbers would be looking at "massive tax increases," when actually the top two rates would be increasing from 33 percent to 36 percent, and from 35 percent to 39.6 percent.
Finally, of all taxpayers who declare business income, about 2 percent declare enough income to see tax increases if the rates on the top brackets expire. Most small business owners would not see a tax increase, though the most profitable small businesses would.
We're not sure why Bachmann distorted the point about gross sales. As we said, it's something that's been explained several times. Good Morning America posted a note on its website after Bachmann's appearance, noting that her statement was wrong. We asked her spokesperson for a comment but didn't hear back.
The proposed increases have been discussed many times and for several years. Her misstatement of the facts on Good Morning America seems designed to scare small business owners into thinking they're in line for a tax increase, even if their income is modest. For distorting the tax proposals to a ridiculous extent, we rate her statement Pants on Fire.
ABC News, Bachmann Supports Tax Cut Compromise, But Not if Tied to Unemployment Benefits, Nov. 16, 2010
Internal Revenue Service, Tax Guide for Small Business, accessed Nov. 17, 2010
Department of the Treasury, General Explanations of the Administration's Fiscal Year 2011 Revenue Proposals, February 2010
The Tax Policy Center, Distribution of Tax Units with Business Income by Statutory Marginal Tax Rate , July 14, 2008
Definition of "gross sales," Dictonary of Business Terms, 3rd edition
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