More Tax Cuts for the Rich? No Way! -- 6 Key Points About the Tax Debate Raging in Washington
Continued from previous page
5. A Big Lie About Small Business
An illustration of the power of the right’s noise machine was on display on Fox News last week when Chris Wallace, considered the network’s most “serious” reporter, confronted Austen Goolsbee, a member of President Obama’s economic team, with the claim that allowing the cuts on high earners to expire as scheduled would raise taxes on “half of small business” income. It’s a claim that’s repeated by conservatives every single day and it is as inherently dishonest as it is technically accurate.
The claim comes from an intentional misreading of a Joint Committee on Taxation report which found that the 750,000 tax payers in the top two brackets earn half of the trillion dollars in business income that will be reported on individual returns to the IRS. But that figure includes many, many businesses nobody would consider “small” -- in 2005, it included 12,862 S-corporations and 6,658 partnerships that had receipts of more than $50 million per year, according to an analysis of the Joint Committee report by FactCheck.org. In other words, very, very rich people will have to pay a bit more in taxes if the cuts for very, very rich people are allowed to expire, but we already knew that.
According to the Joint Committee’s report, only 3 percent of small business owners actually fall into the top tax brackets, so only 3 percent of small business owners -- those who earn the most -- would be affected if the cuts for the top 2 percent were to expire on schedule.
But that’s not the whole story. Again, adding a trillion dollars to the national debt over the next decade threatens to push up interest rates and that would truly harm, rather than help, legitimate small businesses.
6. You Call This Stimulus?
The best and worst argument for keeping the cuts on the highest earners in place is that they’d stimulate the economy.
It’s the best argument because it at least acknowledges that we have a real problem in our labor market, and that reduced consumption is central to that problem. That’s a refreshing break from the conservative blather about businesses not investing because they’re “uncertain” about government regulations to come.
It’s the worst argument because the cuts -- skewed toward the wealthy (whom we know will simply bank the cash) -- represent the worst bang-for-the-buck of any possible measure to stimulate the economy. According to the Congressional Budget Office, extending all of the cuts (they didn’t analyze the impact of extending only the “middle class” relief) would result in just 10-40 cents of stimulus effect for every dollar in lost revenue.
As William Gale wrote in the Washington Post, “of 11 potential stimulus policies the CBO recently examined, an extension of all of the Bush tax cuts ties for lowest bang for the buck." He continued:
The government could more effectively stimulate the economy by letting the high-income tax cuts expire and using the money for aid to the states, extensions of unemployment insurance benefits and tax credits favoring job creation. Dollar for dollar, each of these measures would have about three times the impact on GDP as continuing the Bush tax cuts.
Spending money to kick-start the economy now and worrying about the deficit later is sound thinking. Taking on a trillion dollars in debt to get a fraction of that amount of stimulus is not.
The Bigger Picture
Those are just the specifics of what’s being lost in the hubbub. Context matters, and to give you a sense of how depraved our economic discourse is, one need only contrast how our budget deficits are being spun as an imminent economic disaster. Washington is telling us that we have to suffer some painful “entitlement reform” to right the ship -- yet according to the CPBB, extending Bush’s tax cuts over the next 75 years would cost the same amount of revenue as the entirety of Social Security’s long-term “budget gap.”