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48 Locavesting
three employees but rake in a half a billion dollars. So, in addition
to employee headcount, the SBA also sets revenue thresholds by
industry—less than $750,000 for agriculture, for example, and less
than $33.5 million for building and construction—but a general
rule of thumb is $7 million or less in average annual receipts for
nonmanufacturing industries. These parameters are used to determine
eligibility for small business loans and government procurement
programs. A small business may be a sole proprietorship,
partnership, corporation, or other legal form.
But the defi nition is malleable, and small business owners end
up a convenient pawn in policy debates. Take the controversy over
the expiration of the Bush tax cuts in 2010, which, if allowed to
expire for top earners as proposed by President Obama, would
have reinstated a higher tax rate on individual incomes greater
than $250,000 a year. (In a compromise bill, the cuts were extended
for another two years.) Critics of the proposal, including
the Chamber of Commerce and most Republicans, argued that
allowing the top tax cuts to expire would hurt the nation’s hardworking
small business owners. In fact, as the SBA Offi ce of
Advocacy noted, only 4 percent of the self- employed would be
affected. The real issue, it seems, was the 3 percent of “small businesses”
that generate half of all small business net income. Among
the “family businesses” that benefi t from the Bush tax cuts are oil
and mining giant Koch Industries (2009 revenues: $100 billion),
global consulting giant PricewaterhouseCoopers (2009 revenues:
$26 billion), and private equity fi rm KKR (assets under management:
$55 billion), not to mention many lobbyists, lawyers, celebrities,
and politicians. 2 Not exactly the mental image conjured up by
“small business.”
How do these behemoths pass themselves off as small fry? By
adopting typical small business structures—such as sole proprietorships,
partnerships, and S- Corps. Businesses structured in these ways
don’t pay corporate taxes; instead, the profi t or loss from the business
is “passed through” to the owners, who are taxed as individuals.
When a giant company is controlled by a small number of shareholders,
this can translate into big savings. 3 The Tribune Company saved
$1.9 billion by converting to S- Corp status in 2008, by the company’s