(Associated Press)

“As I said, we’ve actually cut taxes for small business 16 times since I’ve been in office. So taxes for small businesses are lower now than they were when I came into office.”

--President Obama, Town Hall with LinkedIn, Sept. 26, 2011

We’ve been meaning to look into the administration’s claim that the president has cut small business taxes “16 times,” and now the president’s appearance in Silicon Valley has given us an opportunity. (The White House also has claimed as many as 17 small business tax cuts, including a tax cut in a bill signed at the end of 2010.)

The president, in fact, went even further this week and asserted: “Taxes for small businesses are lower now than they were when I came into office.” That’s a big claim. How true is this?

The Facts

The White House first began to cite “16 tax cuts” last year, as the president prepared to sign a small business bill. The fact sheet distributed by the White House stated that bills signed by the president in 2009 and 2010 (primarily the stimulus bill) had yielded “eight separate small business tax cuts,” and that the new bill would add another eight.

But there is less here than meets the eye, which is usually the case when a politician brags about a large number of tax cuts. There are important tax cuts—and then there is small beer. The list includes simplified tax deductions for cellphones (in other words, fewer reporting requirements) or for reducing the penalties for investing in tax-shelter schemes. (We kid you not; here is the technical explanation for these provisions.)

The list also appears to be inflated. The first group of eight tax cuts includes bonus depreciation; the second group of tax cuts extends this provision. There is also an expansion on the limits of small-business expensing in the first list; the second set of tax cuts includes this provision. To us, these seem to be more or less the same tax cut, though others may disagree.

Moreover, these tax cuts are often quite limited in impact. Not only do many require the small business executive to do something to get the tax cuts—as opposed to a real cut in tax rates--but they have sometimes narrowly drawn criteria.

Take, for instance, a small-business health-care tax credit. Not only must a company offer health care to even get the credit, but then it must pass through a series of hoops to qualify for it all, including a) having fewer than 10 people on the payroll; b) paying average wages of less than $25,000 a year; and c) contributing at least 50 percent of an individual employee’s health-insurance premium.

The National Federation of Independent Business estimates that fewer than 250,000 businesses would qualify for the full health-care tax credit—out of an estimated 27 million small businesses--while another 1.2 million would qualify for a partial credit.

Finally, we have to look at the other side of the equation. The new health-care law includes taxes, especially an increase in Medicare payroll taxes, which in 2013 would begin to affect more affluent small business owners making net income of more than $200,000 (single) or $250,000 (couple). That amounts to about three percent of all small businesses.

Obama has also repeatedly proposed increased income taxes on such businesses, though at the moment such proposals have no chance of becoming law because of Republican opposition. (Republicans, in fact, often inflate the percentage of small businesses affected by this proposal, as we have previously documented.) Meanwhile, the president’s jobs bill—which also has no hope of becoming law--would cut payroll taxes on the first $5 million of payroll.

“We have put in place and are proposing to put in place significant tax cuts for small businesses—that have reduced the amount small businesses pay in taxes,” a senior administration official said in response to our questions. “It’s true that some of the tax cuts are targeted and others are not… However you cut it, we’ve decreased the amount of taxes small businesses have paid in our first four years in office.”

The Pinocchio Test

Obama is engaging in some grade inflation. The number of tax cuts, be it 17 or 16, does not really explain that many are so heavily targeted to such a narrow slice of the business community. Only in the most technical sense could the president argue that small business taxes overall are lower, given that there are tax increases coming down the pike. He would do better to explain exactly what he’s done, as opposed to tossing out a rather meaningless figure.

One Pinocchio

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