Up   |  October 07, 2012

The truth about small business

Rep. Peter Welch, D-VT, Temple University business professor Chris Rabb, former deputy in the Obama Commerce Department Ro Khanna, and MSNBC host of Your Business JJ Ramberg join Up w/ Chris Hayes to clearly define what constitutes as a small business, contrary to the political spin on the industry.

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This content comes from Closed Captioning that was broadcast along with this program.

>>> good morning from new york, i'm chris hayes . president obama returns to los angeles today for a celebrity studded concert and fund-raiser. venezuelan president hugo chavez goes to the polls there. joining me, we have congressman peter welch , a democrat from vermont. chris rabb author of "invisible capital." author of "entrepreneurial nation" and former deputy assistant secretary in the obama department and my colleague, j.j. ramberg author of "its your business " and host of msnbcs "your business ." it's great to have you here. thank you, good to be here.

>> if there has been one hero of this presidential election , it has been the mythic small businessman. republicans dedicated their entire con vens with we built this. democrats touted how their policies would help small businesses . it was on display in wednesday night's presidential debate when the words small business were mentioned over 25 times.

>> we are helping small businesses .

>> champion small businesses . the number of small businesses , i know what it takes to get small business going. helping small business .

>> encouraging small business growth lowered taxes for small bidses. through small businesses . 97% of small businesses .

>> it's small businesses . a guy who has a small business . successful small businesses .

>> those small businesses .

>> all the praise for small businesses and their owners obscures the questions we should ask. what counts as a small business and what is their role in the u.s. economy ? many of these small businesses talked about are anything but small . in order to avoid paying income taxes , they use sole proprietor proprietorships and s-corporations. the owners file the profits on individual tax returns making the term small business about the number of owners rather than anything else. as a result, these small business owners include partners of hedge funds . also, donald trump .

>> under governor romney's definition there are a bunch of millionaires and billionaires who are small businesses . donald trump is a small business . i know he doesn't like to think he's small anything, but it's how you define small businesses to get business income.

>> this term is driving me nut, i have to be honest. it's become so central. everyone celebrates small business . it seems to me, a term in search of an actual definition. there's no agreed upon definition. it could mean anything. it's like saying workers. that includes hedge fund managers and janitors because they both work. it's not a useful concept. reverse engineered to score a political point. it begins as it's business , but it's small . it's great. it's not big business . big business is bad but it's business , it's not the state, the public sector. it's small , but it's business . what is a small business ?

>> it's completely misrepresented many ways. people use the term because it's easy to get behind small business . nobody wants to go out and say i'm against small business . this helps or this hurts small business . in terms of the actual definition, if you look at the sba, it's under 500 people.

>> employees?

>> under 500 employees. all of us agree, if you have 499 employees you do not have the same needs as somebody with four employees. it's very confusing.

>> part of the reason of the force of the concept, i think about the laundromat or the diner down the block. i love the owner and the people that work there. they probably have 12 employees. you are great. i want everything to help you but that's not necessarily what we are talking about.

>> we are also have people in the same community who, let's say it's a latina who employs people from the community and a predatory lender, it's a small business , too.

>> right.

>> that's just me, you know?

>> very good point.

>> we have to get beyond the terms. i say starting with this show, we have a moratorium on the term small business . as a guy, i like unicorns. i don't say i like unicorns with horns. it's a given. 97% of small businesses are small businesses based on the government.

>> fewer than 500 employees.

>> exactly. you can fit all the ceos of firms in madison square garden . the rest of the businesses in the population of south carolina . you are talking roughly 18,000 people who run businesses more than 500 people. the millions of businesses that generally are having a very hard time . so, it's not a matter of bigness or smallness. ultimately, it should be those businesses that help sustain communities versus those that prey on them.

>> congressman, it strikes me this has become a thing that is political can't. you are never going to get up in the well of the house and say i proudly bring before today this bill is that going to stick it to small businesses . i mean, but if you say this bill is going to be great for small businesses whether or not it's the case, you give it this kind of legitimacy.

>> you are right on both counts, i'm not going to stick it to small businesses . but, you know, it's not a term in search of definition. it's a term to avoid definition. that's the deal. everybody wants to be quote, for business . some small businesses get the job done. most of the time, when talking small business , the sense of it is people who are in the business of their running. the owner, occupier, they are there getting their hands dirty and the job done. the truth is that we need big business and small business . small business does very well if some of the big businesses are doing well as well. there is an unwillingness to take on the definition of the role of government in big business in restraining anti-competitiveness practices. you really need both. in fact, it should be much more part of how do we build an economy that is sustainable, helps build communities and what is the role of government.

>> in the debate, you saw mitt romney can no longer defend tax cuts for the rich. he wants to say i'm not for tax cuts for the rich, it's for small business . look at the definition. under the definition of small business --

>> hold that thought. let me play mitt romney making that case where he says you want to raise taxes, that's fine. you think you are going to stick it to rich people . really, you are going to stick it to the beloved small business owner. check it out.

>> mr. president, you are right with regards to 97% of the businesses are not taxed at 35% tax rate , it's a lower rate. those businesses, the last 3% happen to employ half, half of all the people who work in small business .

>> okay. please respond to that. there is so much nonsense in that little bit of sound.

>> first of all, the statistic that it employs half is ridiculous. let's look at it carefully. under that definition of small business , i'm a business . why? because i have written a book. i get royalties. that's business income. mitt romney cuts my taxes. now, i'm not going to hire anyone. this idea that cutting the taxes is going to lead to job growth is absurd. in contrast, the president saying i'm for tax cuts but i am if you actually hire someone.

>> my brain was soup as i was trying to sort through all these definitions. the sba, small business administration is trying to define it as a business with 500 people or less. it's not the definition being used here. the definition here is a tax status. in this study.

>> this is where the fact is wrong.

>> yes. thank you.

>> all people who have pass through income, a company that is set up so you are not taxed at the corporate rate, it's the personal rate, those people employ half of the americans he's talking about.

>> half of the people employed by small businesses . right.

>> it's not the 3% he's talking about. the 3% employ a small percent of that. when talking 54%.

>> i see what you are saying.

>> it comes from a study --

>> that was commissioned by the s-corporation trade group . i was reading the study last night.

>> it says the correct thing. it's all of these corporations that pass through.

>> i want to make the point, the study that is the bedrock for these statistics, this thing about small businesses and fractions you get, that study about s-corporations, a specific pass through income was commissioned by the trade group that they did for them. it's the foundation upon which we are basing these policies.

>> i'm getting a headache listening to us talk.

>> perfect. nailed again.

>> i think that is what happened in the debate. average people sitting there are trying to figure out how are they going to pay the bills and where can they get a decent job. the jobs out there now aren't paying the bills. inflation is going up. it's 1% or 2%, gas at four bucks a gallon, pay for college education , whatever it is. the talk on small business obscures, what are regoing to do in this economy to increase demand? demand is going to drive the profitability of small business .

>> we have a survey about small business owners which was interesting. it was conducted by wells fargo . they say why are you not hiring, right? their number one hiring concern is the revenues won't justify adding employees. there aren't enough people, customers to sell things to because the economy is not very good. current state of economy, cash flow ability, go down to the bottom of that for new government regulations.

>> after the debate, i spent a lot of time talking to small business organizations to say what was your reaction to this? they had interesting statistics and ideas. then i spent a bunch of time talking to small business owners saying what did you think of the debate? you know what they said? i don't really care. what i care about is how i'm going to get more people through my door, increase my customers. what's my marketing plan.

>> i want to talk about groups that speak for business like the national federation business . also, if we focus in on a definition of small business we can agree on, whether we should be helping them anyway. is it the case they play a special role in the economy after