Chamber Claims Ending Bush Tax Cuts For Top Earners Means Taxing Small Businesses

Article Chamber Cites For Small Biz Tax Claim Explains That Takano Supports “Ending George W. Bush-Era Tax Cuts For Higher Earners.” From the May 26, 2012, Press-Enterprise article cited in the Chamber ad: “‘If elected to Congress, I will be a voice for the hardworking families of Riverside County — folks who play by the rules, do what’s expected of them and who deserve a government that is there for them when they need it,’ Takano wrote in answer to one of a series of questions posed to the candidates in a questionnaire compiled by The Press-Enterprise. Takano’s legislative priorities would include pressing for local infrastructure and transportation projects, protecting Medicare from GOP efforts to overhaul the system and ending George W. Bush-era tax cuts for higher earners.” [Press-Enterprise, 5/26/12]

CRS: 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]

Few Top Income Taxpayers Are Actual “Small Businesses”

CBPP: “Only 2.5 Percent Of Small Business Owners Face The Top Two Rates.” According to the Center on Budget and Policy Priorities: “Allowing the top two marginal tax rates to return to pre-2001 levels as scheduled next year would affect very few small businesses, a recent Treasury Department study found.  The study shows that only 2.5 percent of small business owners face the top two rates.” [Center on Budget and Policy Priorities, 7/19/12, internal citations removed]

• 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]

Ad Cites A Study That Doesn’t Model Democratic Tax Proposals

The Chamber cites a Heritage Foundation post from July 18, 2012, to support its claim that the Democratic position on the Bush tax cuts “would deliver a crushing blow to our fragile economy.” That post touts an Ernst & Young study purporting to find that President Obama’s tax proposals “would kill 710,000 jobs.”

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]

Consumer Demand Is The Key To Job Growth

Wall Street Journal: “Scant Demand, Rather Than Uncertainty Over Government Policies,” Is “The Main Reason” For Slow Recovery In Jobs Market. From the Wall Street Journal: “The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey. […] In the survey, conducted July 8-13 and released Monday, 53 economists—not all of whom answer every question—were asked the main reason employers aren’t hiring more readily. Of the 51 who responded to the question, 31 cited lack of demand (65%) and 14 (27%) cited uncertainty about government policy. The others said hiring overseas was more appealing.” [Wall Street Journal, 7/18/11]

McClatchy: “Little Evidence” To Support Blaming “Excessive Regulation And Fear Of Higher Taxes For Tepid Hiring.” As reported by McClatchy: “Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation. ‘Government regulations are not ‘choking’ our business, the hospitality business,” Bernard Wolfson, the president of Hospitality Operations in Miami, told The Miami Herald. ‘In order to do business in today’s environment, government regulations are necessary and we must deal with them. The health and safety of our guests depend on regulations. It is the government regulations that help keep things in order.’” [McClatchy, 9/1/11]

Wall Street Journal: Businesses Need “A Burst In Demand Strong Enough To Propel Hiring.” As reported by the Wall Street Journal: “Forecasting firm Macroeconomic Advisers, which sees growth at a 2.3% pace in the second half of this year and 2.8% in 2012, expects firms to keep banking strong profits. But even if businesses remain strong enough to make it through a slowdown, they may have to wait longer for a burst in demand strong enough to propel hiring. ‘The biggest problem is that their order books are thin,’ said Macroeconomic Advisers chairman Joel Prakken. ‘They need fat order books to add people. They need fat order books to buy machines.’” [Wall Street Journal, 8/29/11]

CBO Director Elmendorf: “Primary Reason” For Persistent Unemployment Is “Slack Demand For Goods And Services.” From a blog post by Doug Elmendorf on CBO.gov: “Slack demand for goods and services (that is, slack aggregate demand) is the primary reason for the persistently high levels of unemployment and long-term unemployment observed today, in CBO’s judgment. However, when aggregate demand ultimately picks up, as it eventually will, so-called structural factors—specifically, employer-employee mismatches, the erosion of skills, and stigma—may continue to keep unemployment and long-term unemployment higher than normal.” [CBO.gov, 2/16/12]

AP: “Most Economists Believe There Is A Simpler Explanation” For Slow Job Growth: “There Isn’t Enough Consumer Demand.” From the Associated Press; “Is regulation strangling the American entrepreneur? Several Republican presidential candidates say so. The numbers don’t. […] Labor Department data show that only a tiny percentage of companies that experience large layoffs cite government regulation as the reason. Since Barack Obama took office, just two-tenths of 1 percent of layoffs have been due to government regulation, the data show. Businesses frequently complain about regulation, but there is little evidence that it is any worse now than in the past or that it is costing significant numbers of jobs. Most economists believe there is a simpler explanation: Companies aren’t hiring because there isn’t enough consumer demand.” [Associated Press,10/12/11, emphasis added]