The Schedule C/Subchapter S Canard

The Republicans and John McCain in particular are trotting out a tiresome and thoroughly debunkable claim about Barack Obama's tax plans -- namely, that could hit as many as 23 million small businesses. The McCain campaign credulously cites the obviously self-interested Chamber of Commerce, which counts as a small business any entity or individual who reports any income under Schedule C of the federal income tax return or anyone who organizes a Subchapter S corporation. Hence: 23 million. As says, that's misleading -- generously put. The real pool of small businesses with employees is around six million, and an estimate of the number of proprietorship paying into the top two income brackets is less than 700,000 -- a lot, but about 2.5% of 23 million. What about Obama's health care plan? It's harder to say because so much depends on details and because system wide changes radically restructure who pays what. Nominally, Obama's plan would force small businesses with revenues above and below a certain level to either pay for most of their employees' health care or pay into a government pool. Two days ago, Obama announced a six billion dollar tax credit to nudge these small businesses into paying for the insurance directly. Critics worried that the "pay or play" mandate on these companies would be too taxing and expensive.