Which Candidate's Tax Plan Helps Small Business

Oct. 17, 2008— -- Small-business owners across the country can relate to the plight of Joe the Plumber, an Ohio resident trying to figure out if Barack Obama or John McCain has the best tax policy for his prospective company.

Samuel Joseph Wurzelbacher got his 15 minutes of fame Wednesday night when McCain invoked his story as part of a critique of Obama's economic plans.

Earlier in the week, Wurzelbacher confronted Obama about his proposal to raise taxes for couples earning more than $250,000, saying that it could hurt him as a small-business owner. It appears that Wurzelbacher actually earns a lot less, and might benefit from Obama's plan, but the issue was suddenly thrown in the national spotlight.

So, which presidential candidate's tax policy would actually be best for small businesses?

It all depends on what you call a small business.

Three lawyers in a partnership would be considered a small business, with each member possibly earning more than $250,000 a year.

But so could a lone roofer, earning, say, $80,000 a year.

"Most people like Joe aren't going to be taxed more heavily under the Obama plan," said Roberton Williams, principal research associate and economist with the Tax Policy Center, a joint venture between The Urban Institute and the Brookings Institution, nonpartisan think tanks. "It's just the most successful of the small business or these professional partnerships."

But Alan Reynolds, a senior fellow at the libertarian Cato Institute and former director of economic research at the conservative Hudson Institute, believes that even lower-income wage earners should care.

"I'm not going to be too happy with Obama's proposal even if I don't make 250,000 bucks. Why? Because I hope to," Reynolds said. "That's what the American dream is all about."

There are 27.2 million small businesses in the United States, according to the Small Business Administration. Of those, only 6 million firms, or about 22 percent, had employees. The rest were sole propitiator companies, according to the government.

The vast majority of these companies earn less than $250,000 a year.