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The FabulistBush's absurd obsession with small business.

By Michael KinsleyPosted Thursday, May 15, 2003, at 4:21 PM ET

Illustration by Robert Neubecker President Bush, of course, is not a junior reporter for the New York Times. So maybe it doesn't matter if he makes up stories and puts them in the newspaper. After Ronald Reagan, it's almost a presidential tradition.

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Bush was in New Mexico on Monday with a new answer to critics who complain that his tax cut proposal favors the rich. In two words: small business. "Most new jobs in America are created by small businesses." Therefore tax cuts "must focus on the entrepreneur." And thence to more familiar bromides: It's not "the government's money," it's "your money"; "our greatest strength" is "our individual citizens"; criticism is "just typical Washington, D.C., political rhetoric, is what it is."

The myth of small business is one of the more ridiculous bipartisan superstitions that influence government policy. Small businesses, by their nature, come and go. They create more jobs than big businesses and wipe out more jobs, too. Any small-business owner burdened by high taxes is, by definition, more affluent than the typical big-business owner, who is an ordinary working American with an interest in a retirement fund. Small businesses are swell. But special favors for small business make no sense in terms of either fairness or prosperity.

Bush gave his speech Monday at a company in Albuquerque called MCT Industries. "We're standing in the midst of what we call the American dream," he said. MCT is privately owned by the family of Ted Martinez, who founded it on a shoestring in 1973 and is now a wealthy VIP who hangs around with politicians. "The Martinez family is living that dream," Bush said.

Before we even get to the fantasy element, there is a logical problem here, isn't there? A successful "small" business makes an odd poster child for the proposition that the government is getting in the way of small business success. How did the Martinez family manage to achieve the American dream during a period when high taxes were supposedly thwarting that dream? If MCT Industries is so successful under current arrangements, why does it need a tax cut?

You don't need overdeveloped smell detectors to suspect that this story may be a bit more complicated. And the most casual stroll through the Internet and media databases enriches the narrative a lot. MCT Industries seems to be a weird collection of unrelated businesses whose only unifying theme is selling to government agencies or needing the approval of politicians. The Martinez family is wealthy because of tax revenues, not despite them.

No surprise, MCT is a member of the Rio Grande Minority Purchasing Council, a trade association for businesses looking to benefit from reverse discrimination. Racial favoritism for "disadvantaged" wealthy business owners is the most ridiculous and unjustifiable form of affirmative action and generally the only kind Republicans are enthusiastic about. Martinez is a GOP activist, but his company does not discriminate. At a 1997 conference of Hispanic CEOs, Clinton Energy Secretary Federico Pena boasted about how "MCT was able to secure a diesel-powered aircraft maintenance contract with the U.S. Air Force" thanks to the "assistance" of a federal agency.

Earlier this year, the Albuquerque City Council declined to authorize about $5 million of industrial revenue bonds for MCT. IRBs are a racket—legal, unfortunately—in which local governments use their right to issue federal-tax-exempt bonds in order to raise money for private companies. The company gets to borrow at a below-market interest rate, subsidized by the loss to the federal Treasury. In Albuquerque, the lucky companies get exempted from local property taxes and some state taxes to boot. MCT did not want the money for job-creating expansion but to refinance IRBs it already enjoys to get an even lower interest rate. Those IRBs helped to finance a factory to build maintenance equipment and do R & D, both for the Defense Department.

October 2002. MCT is one of the contributors to a PAC that paid for the mayor's family to visit China.

July 2002. The Bureau of Indian Affairs approves an MCT municipal garbage landfill on an Indian reservation. Also, the New Mexico Rural Development Response Council and several state agencies help MCT to acquire land for a factory to build platforms for aircraft repairs.

August 1999. Waste News reports that Albuquerque has a bizarre regulation requiring all city garbage trucks to be made out of a particular brand of steel. Only one company sells trucks made out of this material. Guess.

December 1998. The Energy Department (secretary: Bill Richardson, now governor of New Mexico) hires MCT to build magnets to be used in making tritium for nuclear warheads.

June 1997. MCT, as a local company, competes against a national waste-management firm for a local garbage-collection contract. It wins the contract and sells the business to the national firm the next day.

October 1996. Republican vice presidential candidate Jack Kemp holds a rally at MCT. Ted Martinez hands him a document asserting that almost a third of MCT's payroll goes to paying federal, state, and local taxes. In his speech, Kemp makes it "half."

October 1995. Giant defense contractor TRW announces that it has won a $185 million contract from the Air Force, which it will share with two "small disadvantaged business" including MCT.

December 1994. In congressional testimony about export assistance for small businesses, a Commerce Department official talks about how the federal government sponsored an exhibit by MCT at the Paris Air Show and subsequent Commerce Department shows in China and Dubai.

So you get rich with a dozen different types of tax-funded help, you become a Republican, and you live happily ever after complaining about how much you pay in taxes. Maybe President Bush was right after all, that is the American dream.

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Michael Kinsley is a columnist for the Washington Post and the founding editor of Slate.

Illustration by Robert Neubecker. Photograph of President Bush on the Slate home page by Stephen Jaffe/Reuters.

COMMENTS

Remarks from the Fray:

If Bush really cared about small businesses he would lower the corporate tax rate. And the simplest-- though by no means the easiest--way to accomplish that would be to enact an across-the-board rate reduction. The revenue shortfall could be redressed by just saying no to Big Bidness lobbyists asking for sweetheart tax breaks and development credits, and insisting that all corporations, big or small, paid taxes in proportion to their net income. I realize I'm being a little unfair to put this all on Bush--after all, the Democrats have done their share of kowtowing and backscratching over the years--but he's the one proposing the outlandish tax cut and offering the specious justification, so I'd like to find out why he feels that dismantling the progressive tax structure bit by bit is the best way to stimulate the economy.

--post_hoc_prior

(To reply, click here)

…Each month I spend close to 14 hours completing tax forms and making payments to the government. But of course I must be affluent so therefore I can afford to not get any work done while I waste my time following the bureaucratic tax procedures. Last year I could have hired someone and grown my business for what I paid the federal government in taxes. But, then again it doesn't matter to you because I am a greedy self serving business owner. I have paid more in taxes to date than my father (a retired postal employee) had paid in a lifetime yet I make less per year that he had made during his peak earning years. Why do it then? Satisfaction of knowing our employees will have job security – Satisfaction that our employees are well paid (many of them make more than I do) with generous benefits – Satisfaction that my sacrifices will help my family by putting food on the table and putting them through school – Satisfaction that with some additional hard work and time, I will be able to grow my company, on my own, and pay myself for my sacrifices (don't worry Mr. Kinsley you will get your share)….If all small businesses are getting favors, then I have been asleep at the wheel, for I haven't found any yet. If by special favors he means 'Pays a lot of taxes' then yes, I am guilty of special favors. I think it is you, Mr. Kinsley, that should thank us small business owners for paving your streets, lighting your cities, taking care of the poor, employing and educating your children, providing healthcare to our elderly and poor, and defending the homeland, for without the over taxation that we are asked to endure this country would be in a world of hurt. Rest easy Mr. Kinsley, for while you are sleeping tonight we will still be working so that we can pay our bills, keep our employees paid, and of course pay our taxes…

--Sad_Day_Indeed

(To reply, click here)

Although, the truth of the matter about who pays the most tax is elusive, the truth is that we all pay too much and not enough. We pay too much when our government is so large that we can't even keep track of it's components or even purposes. We don't pay enough when the basic requirements for survival and enrichment of our population are sacrificed at the altar of deficit reduction solutions. What bothers me the most is that our two party system gets so entrenched in their pseudo-political philosophies that they refuse to listen to the voices of the people who are clamoring to be heard. If President Bush is aware of MCT's history, then surely this the wrong business to peddle his ideology. I am sure that there are many small businesses that can benefit greatly from his tax strategies and they should be the ones given PR push that they dearly deserve. On the other hand, the president should reflect on the lives of many Americans who sorely need the support that only a more generous health care system can bring about. That applies to our educational infrastructure and a myriad of government agencies that provide the help and protection needed by a great many Americans. These are the same citizens whose sons and daughters the president is so readily willing to send overseas. President Bush should stop looking for easy solutions because there are none. He has to hit the books and figure it out and then I think a second term is his to earn.

--pramerikan

(To reply, click here)

You claim that citing a company which has grown successfully in spite of higher taxation actually defeats the argument that lower taxation helps small business. Regardless of your feelings toward this particular company, you must know your line of reasoning is spurious at best. The argument was not that small companies cannot succeed with higher taxation. The argument was that small companies will be better off if taxation is lower. The point Mr. Bush was surely making was that we need more success stories of this kind and that lower taxation will accomplish this. You may disagree that lowering taxes will have such an effect. You may disagree with the details of the tax cut. But you commit the straw-man fallacy when you change the conclusion of the argument, by pointing out that since a particular company has succeeded without this tax cut that Mr. Bush is therefore wrong…

--TheQuietMan

(To reply, click here)

(5/16)

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