Ending The Bush Tax Cuts Is Not “The Largest Tax Increase In American History”

The ad’s claim that Rep. Berkley “voted for the largest tax increase in American history” cites Americans for Tax Reform on March 28, 2007.

ATR Described FY 2008 Budget Proposal, Which Ended The Bush Tax Cuts, As “The Largest Tax Increase In American History.” According to a letter to House members from Americans for Tax Reform president Grover Norquist: “On behalf of Americans for Tax Reform (ATR), I urge you to vote against the proposed fiscal year 2008 budget. This budget provides for the largest tax increase in American history, drastically increases spending, and if enacted will slow economic growth.” [Norquist Letter, 3/28/07]

Expiration Of Bush Tax Cuts Not The Biggest Increase In History “By A Long Shot.” From CNNMoney: “Then there is the matter of whether allowing all the Bush tax cuts to expire, would, in fact, be ‘the largest tax hike ever.’ By any fair measure, that’s not true either. To be sure, it would be a very big tax increase, raising revenues by about 2% of gross domestic product. But the biggest ever? Not by a long shot. Back in 2006, Jerry Tempalski at the Treasury Department measured the relative size of all major tax bills just since 1940 (which fits pretty well into the definition of ‘ever’). This is what he found: The Revenue Act of 1941 raised taxes by an average annual rate of 2.2% of GDP, more than the impact of letting all the Bush tax cuts expire. The Revenue Act of 1942 was even bigger. It raised taxes by a whopping 5% of GDP. Remember, we used to pay for our wars in the old days, instead of leaving the bill to our grandchildren. And, in case you were wondering, the three major tax increase bills signed by President Reagan — TEFRA of 1982, the Social Security Amendments of 1983 and the Deficit Reduction Act of 1984 — raised taxes by a combined 1.6% of GDP, not much less than what we are yelling about today. We’ve been here before: Now, there is nothing new about this ‘biggest tax cut ever’ canard. Republicans said it about President Clinton’s 1993 tax increase, which actually raised taxes by 0.63 percent of GDP. They trotted it out again in their campaign against Obama’s health bill.” [Money.CNN.com, 9/7/10]

• Bush Tax Cuts Were Passed With An Expiration Date. From the Tax Foundation: “But is allowing a scheduled expiration to take place even a ‘tax increase’ at all? All of the big tax increases in history have required explicit action by Congress. In this case, the ‘tax increase’ was set in law by Congress in 2001 as part of the tax cut due to Senate reconciliation rules.” [TaxFoundation.org, 9/16/10]

Few Top Income Taxpayers Are Actual “Small Businesses”

To support its claim that Berkley “backs a plan to raise taxes on nearly a million small businesses next year,” Crossroads GPS cites an ABC News report from September 8, 2010.

Berkley Voted To Extend Bush Tax Cuts for Those Earning Under $250,000. According to the New York Times, “The House on Wednesday easily approved a one-year extension of all the Bush-era tax cuts set to expire in January, but in the Senate, presidential politics are complicating efforts to extend a tax credit for wind power. The House votes pitted a straight extension of all the expiring Bush tax cuts against a Democratic plan, passed by the Senate, that would allow taxes on income, capital gains and dividends to rise on earnings over $250,000, increasing revenues by around $100 billion. It was not close. The Democratic plan failed 170-257, with 19 Democrats voting no. The Republican plan passed 256-171, again with 19 Democrats throwing in their support.” Berkley voted for the Democratic plan and against the Republican one. [New York Times, 8/2/12; H.R. 8, Vote #543, 8/1/12; H.R. 8, Vote #545, 8/1/12]

ABC News Claimed 894,000 Small Businesses  (2.5 Percent) Would Pay Higher Taxes If Rates On Income Over $200,000 Went Up. In the ABC News report cited by Crossroads GPS, Jonathan Karl stated: “Republicans claim raising taxes on those earning more than $200,000 a year would hurt small businesses. […] But Democrats say only a tiny fraction of small businesses would be affected. That’s true, according to the Tax Policy Center, which says only 2.5 percent of small businesses would see their taxes go up. So, 2.5 percent affected. We asked the Tax Policy Center how many small businesses that is. Their answer: 894,000 small businesses that would see their taxes go up. A small percentage, but a large number of small businesses.” [ABC News, 9/8/10]

Tax Policy Center: About 900,000 People Reporting Business Income – Not Necessarily Small Businesses – Would Pay Higher Rates If Bush Tax Cuts On Top Earners Expired. From the Tax Policy Center’s TaxVox blog: “This is what we know: Most small businesses report their income on individual tax returns, either on Schedule C (for self-employment or sole proprietorships), Schedule E (for S corporations) or schedule F (for farms). We don’t know how many of these businesses are really small, but next year about 36 million taxpayers will report income from these sources on their 1040s. Only about 900,000, or 2.5 percent, would pay higher rates if the Bush tax cuts were allowed to expire for those in the top brackets. However, that relative handful of business owners will report $400 billion, or almost 44 percent of all the business income included in individual returns. But for many of those reporting postive [sic] business income, these earnings are a relatively small fraction of their total taxable income. Some may be earning a little something from a side business. Perhaps they own a piece of rental property. Or do a bit of baby sitting. Some may be plumbers or computer technicians who work a day job and pick up a few extra bucks after hours, or corporate accountants trying to start a cupcake business in their free time. On the other hand, some reporting business income would face higher taxes if the top rates returned to their pre-2001 levels of 36 percent and 39.6 percent, up from today’s 33 percent and 35 percent. Ninety percent of high-earners who receive business income will get at least half of their AGI from this source in 2011. A half million top-bracket filers will report net positive business income averaging more than $700,000. These are the people–not the mom-and-pop business owners– who would be hit by the expiration of the top bracket tax cuts. Who are they? Many are doctors, lawyers, and investors. Others are very successful entrepreneurs who may own a chain of grocery stores or dry cleaners, or a lot of real estate.” [TaxPolicyCenter.org, 8/5/10, emphasis added]

• Conservatives Rely On Definition Of “Small Business” That Counts President Obama And Mitt Romney. According to the Center on Budget and Policy Priorities: “The claims that allowing the Bush tax cuts for high-income people to expire would seriously harm small businesses rest on an exceedingly broad, and misleading, definition of ‘small business.’ The definition is so broad, in fact, that under it, both President Obama and Governor Romney would count as small business owners — as would 237 of the nation’s 400 wealthiest people.” [Center on Budget and Policy Priorities, 7/19/12, internal citations removed]

• Conservative Definition Of “Small Businesses” Includes Multi-Billion-Dollar Corporations Like Bechtel And PricewaterhouseCoopers. According to the Center for American Progress: “‘That’s 750,000 small businesses in America, the most productive, the ones that are the most successful, getting hit by a tax increase on top of everything else that’s happened to them in the last 18 months of this administration,’ said Senate Minority Leader Mitch McConnell (R-KY). But McConnell’s number is only accurate if you take an incredibly expansive view of what constitutes a small business. Included in that 750,000 is the Bechtel Corporation, the largest engineering firm in the country. It is the fifth-largest privately owned company in the United States, posting gross revenue in 2008 of $31.4 billion. […] The auditing firm PricewaterhouseCoopers, which has operations in more than 150 countries, fits the bill as well.” [Center for American Progress, 10/21/10, emphasis added]

• Former Bush Economist Alan Viard: GOP’s Definition Of Small Businesses Is A “Fallacy.” As reported by the Washington Post: “Which is why Republicans continually define pass-through entities of all sizes as small businesses, a position [former Bush White House economist Alan] Viard called a ‘fallacy.’ ‘How can it be that 3 percent of owners are accounting for 50 percent of small business income? Those firms they’re owning can’t be all that small,’ Viard said. ‘And that’s true. They’re very large.’” [Washington Post, 9/17/10]

Joint Committee On Taxation: “3.5 Percent Of All Taxpayers With Net Positive Business Income” Fall Into Top Tax Bracket. According to the Joint Committee on Taxation: The staff of the Joint Committee on Taxation estimates that in 2013 approximately 940,000 taxpayers with net positive business income (3.5 percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the president’s proposal, and that 53 percent of the approximately $1.3 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent. [Joint Committee On Taxation, 6/18/12]

Those In The Top Bracket Still Benefit From Middle-Income Tax Cuts. According to the Center on Budget and Policy Priorities:

Furthermore, as Figure 2 shows, under the proposal to allow tax cuts on income above $250,000 ($200,000 for single filers) to expire, taxpayers in the top two brackets would still keep sizeable tax cuts on the first $250,000 of their income ($200,000 for single filers).

[Center on Budget and Policy Priorities, 7/19/12]

Congressional Research Service: Allowing Tax Cuts For The Rich To Expire Will Reduce Deficits “Without Stifling The Economic Recovery.” According to Reuters: “Letting tax rates for the wealthy rise will not put a short-term damper on the economic recovery, according to a report by the non-partisan research arm of the U.S. Congress. […] Republicans want the cuts continued for all income groups while Democrats favor letting them expire for the most affluent Americans. ‘If the economy is still weak, a temporary extension (of all the rates) will not harm the economy,’ despite adding to the deficit, the CRS report said, citing CRS economist Thomas Hungerford. But allowing the rates to rise just for the wealthy could help ‘reduce budget deficits in the short term without stifling the economic recovery.’” [Reuters, 7/19/12]

Ad Cites A Study That Doesn’t Model Democratic Proposals

To support its claim that Berkley backs a plan that “would destroy hundreds of thousands of jobs,” Crossroads GPS cites a Bloomberg story on an Ernst & Young study commissioned by business associations.

Ernst & Young Study Didn’t Address President’s Proposals. According to economist Jared Bernstein: “First off, E&Y quite conspicuously fail to simulate what it is the President is proposing, so their main findings shouldn’t be considered in evaluating his proposals.  Second, when they get a little closer to what he is proposing, they find it adds jobs.” [JaredBernsteinBlog.com, 8/14/12]

Ernst & Young Study Assumes Revenue From Ending Tax Cuts Will Pay For More Spending, But Obama Proposed To Use It For Deficit Reduction. From an analysis by the National Economic Council’s Jason Furman via the White House: “The President has proposed to let the high-income tax cuts expire and use the resulting $1 trillion in savings (over 10 years) as part of a balanced plan to reduce deficits and debt and put the nation on a sustainable fiscal course that includes $2.50 of spending cuts for every $1.00 of revenue.  But rather than modeling the President’s proposal to reduce the deficit, the headline numbers in the study explicitly assume that the revenue would be used entirely to finance additional spending.  In fact, the study explicitly states, ‘Using the additional revenue to reduce the deficit is not modeled.’” [WhiteHouse.gov, 7/17/12, underlining original]

When The Study Models Ending Top-Tier Tax Cuts While Giving Middle Class Cuts, It Projects An Employment Increase. According to economist Jared Bernstein: “But for all of that, they actually find that when they model something that’s closer to what the President is proposing — getting rid of the Bush tax cuts for high-income families, while providing additional tax  cuts to the middle-class — employment grows by 0.4%, or almost 600,000 jobs. When they simulate the wrong scenario of new tax revenues used to support higher spending (column 1, table 2), they estimate that employment would fall by 0.5%.  But if the revenue was used to finance across-the-board tax cuts, employment grows.” [JaredBernsteinBlog.com, 8/14/12]