After a week of spin that turned George W. Bush's performance in the first presidential debate, a narrow loss at worst, into an epic story of a president crushed to a pulp by John Kerry, Super-Candidate, it was hard to score Friday's fairly match-up as anything but a big win for Bush. But for those looking to dock points from the President, though, one exchange stood out, on the topic of Subchapter-S corporations, the small businesses that John Kerry would like to raise taxes on:
Kerry: The president got $84 from a timber company that he owns, and he's counted as a small business... That's how they do things. That's just not right.
Bush: I own a timber company? That's news to me. Need some wood?
The Kerry-Edwards campaign released a "fact sheet" citing Kerry's source: a report by the Annenberg Public Policy Center's FactCheck.org asserting that
President Bush himself would have qualified as a "small business owner" under the Republican definition, based on his 2001 federal income tax returns. He reported $84 of business income from his part ownership of a timber-growing enterprise. However, 99.99 percent of Bush's total income came from other sources that year. (Bush also qualified as a "small business owner" in 2000 based on $314 of "business income," but not in 2002 and 2003 when he reported his timber income as "royalties" on a different tax schedule.)
Many news organizations, including ABC and the Washington Post, reported this as the end of the matter: Kerry was right, Bush was wrong. But unfortunately for Kerry and our esteemed press corps, FactCheck.org went back and re-checked its own facts:
We should clarify: the $84 in Schedule C income was from Bush's Lone Star Trust, which is actually described on the 2001 income-tax returns as an "oil and gas production" business. The Lone Star Trust now owns 50% of the tree-growing company, but didn't get into that business until two years after the $84 in question. So we should have described the $84 as coming from an "oil and gas" business in 2001, and will amend that in our earlier article.
But FactCheck.org remains committed to the view that it was Bush who was in the wrong in this exchange. This is bizarre for a couple of reasons.
First of all, Lone Star Trust is a blind trust, a common tool for wealthy politicians to help minimize the appearance of ethical impropriety. It's the President's money, but he does not make decisions about how it is invested; almost certainly, Friday was indeed the first time he heard of any timber company that he has a stake in.
And second, it's not true that, as Kerry seemed to say, the tax code is so broad that Bush himself, a man worth $18 million ("peasant!" sniffs Teresa Heinz-Kerry), is "counted as a small business." It's the timber company in question, LSTF, LLC, that's counted as a small business. And by any reasonable definition it is a small business: It has only two shareholders (counting Lone Star Trust), its assets are worth less than $230,000, and it had a gross income last year of $0 (the trees that it is growing aren't expected to be ready for sale until 2007). It's the characteristics of the business itself, not the net worth of those who happen to own a piece of it, that determine whether a business qualifies to file under Subchapter S.
MORE IMPORTANT, PERHAPS, THAN the details of the timber company question is what the exchange seems to tell us about John Kerry, which is that his concept of wealth is limited primarily to the luxuries that come with being Queen Teresa's consort. The concerns of the broad investor class -- the dream of an easy retirement; the weighing of risk against reward; the pursuit of the productive vehicle that will grow one's earnings; in short, the engine of capital formation that drives economic growth -- is completely foreign to him. How else to explain Kerry's equation in tone of a share in an enterprise that generates a small stream of revenue to a cartoon of a President Robber Baron and the "timber company that he owns?"
Small wonder that it wouldn't occur to Kerry that the bull's-eye on the backs of families making over $200,000 in his "fiscal responsibility" agenda -- which includes hikes in taxes not only on income but on capital gains and dividends as well -- also targets anyone who works for a company those families might invest in.
One can almost imagine Kerry as a malign incarnation of the airport-shuttle driver in the AmeriTrade ad from a couple years ago who, overhearing his passenger remark on his ownership of certain large corporation, calls ahead to the hotel to arrange a VIP welcome for what turns out to be a ordinary stockholder. In this version, when Joe Investor gets to the hotel, the staff robs him.
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