Ending the Bush Tax Cuts

[Pangloss]

ABC News' Jonathan Karl ran an interesting piece counter to the conventional wisdom tonight about the impact of the Bush tax cuts. Most observers lately have seemed to come down on the side of minor impact on small business if any, focusing on an assessment by the Tax Policy Center that less than 2% of small businesses would be affected (source). But Karl asked the TPC for more info, and found that they've recently upgraded that estimate to 2.5%.

 

Intrigued, Karl asked how many businesses that would be, and the answer he got was a staggering 894,000! There are about 15 million Americans presently unemployed. Can we really afford to unemploy another million or two? That actually seems like a good idea to somebody?

 

Bear in mind that while that would be the effect of current Democratic planning, the party does want to extend part of the Bush tax cuts. But they're going to have a fight on their hands to do that, because Republicans would probably rather see them all expire than to compromise because Democrats would receive most of the blame for that, having stood so tall on that issue on so many campaign trails.

 

Here's a link to the ABC News piece, which presents the figures cited above at about the 1:35 mark. What do you all think?

 

http://abcnews.go.com/WNT/video/fact-checking-tax-cut-debate-rich-wealthy-extend-small-business-concerns-unemployment-11588336

[iNow]

I find it enormously curious how you've framed the issue, as if the cuts worked and that we should keep them b/c it would hurt 2.5% of small businesses instead of less than 2% if we decide to let them expire. It strikes me as equivalent to arguing that the stimulus failed because they said it would prevent unemployment from going above 10% and we still went above 10%, so we should instead have spent nothing (the mind boggles how people still fail to see how high unemployment would have gone without this spending, and how their measure of success is a bit of a canard, but that's not what you've done here... my apologies for the digression).

 

 

I think I will attach a more informed analysis about the cuts themselves to add detail to what you've posted in the OP:

 

http://www.nytimes.com/2010/08/23/opinion/23krugman.html

 

According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments.

 

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade.

 

How can this kind of giveaway be justified at a time when politicians claim to care about budget deficits? Well, history is repeating itself. The original campaign for the Bush tax cuts relied on deception and dishonesty. In fact, my first suspicions that we were being misled into invading Iraq were based on the resemblance between the campaign for war and the campaign for tax cuts the previous year. And sure enough, that same trademark deception and dishonesty is being deployed on behalf of tax cuts for the wealthiest Americans.

 

So, for example, we’re told that it’s all about helping small business; but only a tiny fraction of small-business owners would receive any tax break at all. And how many small-business owners do you know making several million a year?

 

Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.

 

No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture, in which Congress won’t take action to revive the economy, pleads poverty when it comes to protecting the jobs of schoolteachers and firefighters, but declares cost no object when it comes to sparing the already wealthy even the slightest financial inconvenience.

 

 

 

Not to mention how you've omitted whether or not the cuts work the way it's claimed they did (which, I'll just cut to the chase, they didn't):

 

http://modeledbehavior.com/2010/07/13/ezra-klein-is-dismayed-that-some-people-think-the-bush-tax-cuts-raised-revenue/

 

In short, unless you think the economy was permanently damaged, all the way up until 2008, from the dot-com bubble in 2001 then you should expect tax receipts to return to the baseline.

 

After all they are pretty smooth in the wake of the larger early 90s recessions. You should also note that there is no huge boom from the housing bubble. No, for the most part federal receipts track the long run trend growth in the economy.

 

Lastly, the core argument here is that supply side didn’t work. Are you really going to tell me that the mildest recession in post-war history was so bad that it lead to persistent underperformance of revenue even though in a counterfactual world revenue would have surged above trend growth?

 

<...>

 

At a minimum we should expect post dip revenue to grow faster as the economy tries to return to trend.

 

We don’t see that. We see a permanently lower trend.

 

Given that this is exactly what you would expect from reducing the percentage of the economy which taxed, I think its pretty strong evidence that this is what happened.

 

In short, the claim that the Bush tax cuts had such strong secondary effects of boosting GDP and tax compliance that they outweighed the primary effect of reducing taxable income is a complex one. Generally, in science we would expect someone to assemble a strong empirical case for such a claim.

 

When the empirics match the much simpler, more basic, more parsimonious explanation, that’s pretty damning for the complex claim.

 

 

 

http://krugman.blogs.nytimes.com/2010/07/14/tax-cut-delusions/

 

A number of people have reacted to Mitch McConnell’s defense of Jon Kyl, with his remarkable claim that the Bush tax cuts paid for themselves. In a rational world, the failure of the economy to do anything special after those tax cuts, following a boom period after the Clinton tax hike, would have cast strong doubt on any claims about the favorable impacts of tax cuts on the economy, let alone on the claim that these effects are so strong as to generate more revenue than the losses from the cuts. As this nice chart shows, the actual path of revenue was pretty much what you would have expected if the Bush cuts had no supply-side effect at all.

 

But judging from the reaction both to my post and to Menzie Chinn’s, there are a lot of people who can’t handle the truth.

 

 

 

 

More here debunking various tax cuts were awesome silliness:

 

http://krugman.blogs.nytimes.com/2010/07/28/tax-cut-truthiness/

 

 

 

 

 

To answer your question, Yes... I think we should let the tax cuts expire. The data reinforces this as the best option.

Edited September 9, 2010 by iNow

[Pangloss]

I find it enormously curious how you've framed the issue, as if the cuts worked and that we should keep them b/c it would hurt 2.5% of small businesses instead of less than 2% if we decide to let them expire.

 

That's not my "framing", it's the statement of the non-partisan Tax Policy Center, which supports allowing them to expire on the most expensive earners, extending them only for middle-income earners (i.e. they support President Obama's and Democrats' plan). This is supported by the link I provided.

 

But even if it were a smaller number, could we really afford to let half a million businesses face three-percent tax increases leading to (as claimed by two examples in that story) 2, 3, 4 or more layoffs per company?

 

Do you have any evidence to suggest that the number is less than, say, 100,000, which would only produce, say, 200,000 job losses? Or that it might be an even smaller number? Because that claim by the Tax Policy Center seems to be what's informing the Democrats' main party line, so it doesn't sound like they have any such evidence.

 

BTW, it's utterly bat-spit crazy that Krugman is saying that the government gave $680 billion to 1,000 people. Every single taxpayer in this country saw a benefit from the tax cuts -- even you. And certainly the Tax Policy Center considers it incorrect. I can't imagine why you would see that as "more informed".

 

That's why the Obama administration doesn't support letting them all expire. They want to extend the ones that affect middle-income Americans. But Krugman, in talking about $680 billion, is promoting the expiration of ALL the tax cuts. And his lack of data is notably contradicted by, as I say, the Tax Policy Center, which (unlike Krugman) is clearly non-partisan (because they support the President's plan).

 

 

Not to mention how you've omitted whether or not the cuts work the way it's claimed they did (which, I'll just cut to the chase, they didn't):

 

Again I'll just point out that you're arguing with President Obama and the Democratic Party and leave it at that.

[iNow]

BTW, it's utterly bat-spit crazy that Krugman is saying that the government gave $680 billion to 1,000 people.

Utterly bat-spit crazy? Hmm... Okay... Maybe the comment becomes much more reasonable when you don't strawman it.

 

 

Let's review what he ACTUALLY said, and not what Pangloss read him say, shall we?

 

 

He said that if we extend the tax cuts, it would result in a loss of $680B in revenue over the next 10 years, and that the primary beneficiaries of that $680B would be the richest 1 tenth of 1 percent.

 

And... oh... hold on there... slow down, speed racer... what was that? Yes... OMG... Yes! Unbelievable... It's MORE bat-spit:

 

 

It's that same Tax Policy Center you continue to cite which made the actual claim about who would benefit! No Way! That's crazy talk, man!! Lay off the sauce! It's rotting your brain!!!!1!22!one1!

 

 

Hmm... Maybe we should double check... You know... Just to be sure.

 

How did Krugman say it? Oh yeah... It's right there... quoted in my post. Let me show you again:

 

 

where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent.

 

Hold on... Let me be more specific. Here's the part you actually strawmanned... My bad:

 

Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break.

 

 

Gosh. That Krugman and his bat-spit zaniness...

 

 

Maybe I should confirm that by looking at the actual Tax Policy Center report... You know, this one:

 

 

http://taxpolicycenter.org/UploadedPDF/1001438-tax-cuts-debate.pdf

 

The impact of the Obama proposal is virtually identical to that of extending all of the cuts for the vast majority of taxpayers. Sizable differences don’t emerge until you hit the top 1 percent of taxpayers—those households making at least $600,000. Even more striking is the finding that the majority of the savings accrues to the top 0.1 percent of taxpayers—those 120,000 taxpayers with average annual income of about $8.4 million.

 

<...>

 

In other words, the heated debate over whether to extend all of the tax cuts or whether to extend merely the vast majority largely concerns whether to extend an extra $310,000 in tax relief to the wealthiest 120,000 taxpayers or whether we should instead make a relatively small down payment toward fiscal sustainability.

 

 

Since apparently reading comprehension is not your strength, let me show it in graphical form:

 

 

 

 

 

 

Ah... That Krugman and his ability to spin facts. Oh... wait... That was you, wasn't it?

 

 

 

Every single taxpayer in this country saw a benefit from the tax cuts -- even you.

Is this hollow hyperbolic assertion supported by anything more than your rectum and wish thinking, Pangloss? Despite my tone, it's a serious question.

 

 

 

But Krugman, in talking about $680 billion, is promoting the expiration of ALL the tax cuts.

Hmmm... My strawman detector is going off the charts right now, but I'll give you the benefit of the doubt. After all, you've been right so many times already in this thread.

 

Please share the precise quote which led you to this conclusion that "Krugman is promoting the expiration of ALL tax cuts." I'm not getting that from his articles. Clearly you're seeing something I'm not. Now it's time for you to show it to us.

 

 

 

Again I'll just point out that you're arguing with President Obama and the Democratic Party and leave it at that.

I encourage you to try harder than that. I put forth numbers in support of my argument, shared graphs, and many supporting links and relevant quotes. Merely telling me that Obama and other Democrats are pursuing another path hardly negates any of my points.

 

 

(not to mention that you've demonstrated a painful inability to represent accurately what others are actually proposing)

Edited September 9, 2010 by iNow

[Pangloss]

He said that if we extend the tax cuts, it would result in a loss of $680B in revenue over the next 10 years, and that the primary beneficiaries of that $680B would be the richest 1 tenth of 1 percent.

 

Yes, and he's wrong to say that that's limited (even mostly limit) to a tiny group of people, because every single taxpayer saw a benefit from the tax cuts on their bottom line.

 

You have done absolutely nothing to refute Jonathan Karl's (not PANGLOSS'S) point that the Tax Policy Center ITSELF says that 894,000 businesses would be adversely affected BY THE ADMINISTRATION'S PROPOSAL, which is NOT to preserve all the tax cuts. So raising what would happen if the ENTIRE tax cuts are preserved IS A STRAW MAN.

 

 

The rest of your post is just repetition and insults.

 

Lay off the sauce! It's rotting your brain!!!!1!22!one1!

Since apparently reading comprehension is not your strength

Is this hollow hyperbolic assertion supported by anything more than your rectum and wish thinking, Pangloss? Despite my tone, it's a serious question.

 

Why the heck you'd think anyone would want to engage you when you behave like this is beyond me.

[ParanoiA]

Oops, my bad, I thought this was a thread on the Bush Tax cuts. Looks like it's iNow's vanity page...or is it ego therapy? Ah well, either way, it's about rescuing his manhood from something...

[A Tripolation]

*pulls up a chair and starts microwaving some popcorn*

[jackson33]

In 2010, your filings are based where you fall after deductions, credits or other deductible amounts.

 

 

Tax Rate

Married Couples Filing Jointly - Most Single Filers

 

10% Not over $16,750 -Not over $8,375

15% $16,750 – $68,000 -$8,375 – $34,000

25% $68,000 – $137,300 -$34,000 – $82,400

28% $137,300 – $209,250 -$82,400 – $171,850

33% $209,250 – $373,650 -$171,850 – $373,650

35% Over $373,650 -Over $373,650

 

http://www.moneybluebook.com/2010-federal-income-tax-brackets-irs-tax-rates/

 

Since nobody has any idea what the allowable deductibles and credits will be for 2011 or in fact what over 250K actually means, I'd bet both the upper brackets will increase. Where people are getting lost, is most business and many households can maneuver incomes/deductibles, from or into the following year. Remember nearly half the filers have enough deductibles, to show NO (-0-) taxable income. Ironically, small business has had the option to go Corporate, paying Corporate Tax* or using some form of the Individual Forms. The reason most have stayed away from Incorporation (Farms to you local grocer or gas station) is under the Corporate, that tax has been 39% (100k-335k profit or taxable), some 11% more than some Individuals...Publicly listed/owned Corporations have no choice but do pay a little less (35%)

 

* http://www.smbiz.com/sbrl001.html

 

 

Pangloss, I'm throwing this info out there, in an effort to demonstrate all that is involved when Federal Taxing is involved. If your paying attention to the rhetoric coming from the Administration, everything involving Credits (Tax Deductible) are "targeted" or meant to specific business models/ or individuals as chose by the Administration.

 

As for hurting 2-3 or 20+% of small business, IMO it's probably closer to the 20% in 2011 and 95% in 2012-2014 as Health Care Cost and mandates take hold. As mentioned, small business can adjust its incomes/expenses to a degree and survive to the 2012 Taxing year, due April 2013. When in comes to lost jobs, IMO it's more the moderate to larger Companies, that will effect the job loss or gains and it's emotionally attached to competitive principles. Most these larger Companies, especially that produce a product are already "International Operations", have manufacturing plants on foreign soil or simply buy products from foreign producers, then distribute under their US name (electronics).

 

iNow, as I understand your base argument, unless you add in GDP which greatly increased, the cost of "Social Programs" (includes Bush's Prescription Drugs) from the 1960-70's (including Fanny and Freddy) and the MOST important factor (STATE/LOCAL TAXES, which decreased middle class disposable incomes), your spinning your wheels. The economy grew and grew rapidly, considering the cost of the "War on Terrorism" (not just the 2 wars). It's off topic on this thread, but IMO if Obama had not tried to enact everything in the first two years, cut the 2009 Budget (as Bush wanted to), said (whether honest or not) he wanted to maintain all the Bush Tax cuts and a few other things, NONE of these discussions would be going on, or would he be facing a two year lame duck Congress and possible one term Presidency.

[iNow]

Yes, and he's wrong to say that that's limited (even mostly limit) to a tiny group of people

Wait, what? How can you continue to say this in the face of the numbers and chart I shared above? How can you say this given the actual Tax Policy study I linked? Every single bit of data refutes this assertion, and yet you continue to make it.

 

Let me say again... Yes, most of the benefit goes to the richest 1%, and even there, the vast majority is the richest one tenth of one percent.

 

Stating otherwise multiple times does not change that FACT, Pangloss.

 

 

because every single taxpayer saw a benefit from the tax cuts on their bottom line.

And I asked you to support this comment with numbers and evidence. You have not yet done so.

 

 

You have done absolutely nothing to refute Jonathan Karl's (not PANGLOSS'S) point that the Tax Policy Center ITSELF says that 894,000 businesses would be adversely affected BY THE ADMINISTRATION'S PROPOSAL

As I stated in my very first reply, this is an invalid metric for whether or not we should extend the cuts (it's little more than a red herring, actually) because it ignores the effectiveness and merit of the cuts themselves.

 

---

 

As for hurting 2-3 or 20+% of small business, IMO it's probably closer to the 20% in 2011 and 95% in 2012-2014 as Health Care Cost and mandates take hold.

Nobody is talking about health care. This is about the Bush Tax cuts. Why are you conflating the two? They are separate programs, and health care is not being discussed here.

 

 

 

iNow, as I understand your base argument,

You obviously don't.

Edited September 10, 2010 by iNow

[Marat]

There

 

There are basically two ways to stimulate the entire economy -- and thus benefit everyone -- by giving a targeted tax cut to one social group. You can give tax cuts to the rich, who will save much of it and invest a lot overseas because of their greater financial sophistication, or you can give tax cuts to the poor and the middle class, who will spend all of it on immediate consumer needs locally. Targeting tax cuts to the rich thus wastes much of the revenue lost to the Treasury, since it fails to stimulate the domestic economy, while targeting tax cuts to the poor and middle class produced a greater stimulus for the economy per dollar of Treasury revenue lost. This is part of the reason why the greatest growth in the history of the U.S. economy came after World War II, since the GI Bill fed money to the poor and the middle class. In contrast, the period after World War I without anything comparable to the GI Bill saw a recession. Also, many of the Republican tax cuts to the wealthy have had little benefit for the economy, since they went to inflate the speculative bubble by fuelling investments in artificial bets on market performance (derivatives) rather than going to genuine investments in the real economy, which is where all the increased consumer spending from middle class tax cuts would ultimately go. Insofar as the speculative bubbles fuelled by tax cuts to the rich often burst, as happened in 2008, they can be positively harmful to the economy, as the increased consumer spending of the middle class never is.

 

Finally, there is the social justice issue to consider. Since tax cuts do not just stimulate the economy but also incerase the buying power and thus the wealth of those groups which receive them, a tax cut for the poor and the middle class helps those who need it most buy necessities, rather than increasing the luxuries of those who already have more. Tax cuts for any group hurt the poor and the middle class since they reduce the government budget for free public institutions, subsidized public programs, and social welfare agencies on which these two groups most depend, so if the tax cuts are at least concentrated on these groups, they are partially compensated for their loss. If they go to the wealthy, however, the maldistribution of wealth is increased, which diminishes the net social benefit of wealth, since $1000 in the hands of a poor person produces much more happiness than the same $1000 in the hands of a rich person.

[Pangloss]

Let me say again... Yes, most of the benefit goes to the richest 1%, and even there, the vast majority is the richest one tenth of one percent.

 

ABC News' Jonathan Karl (a reporter with no known bias that I'm aware of) says is that the Tax Policy Center says that 2.5% of small businesses, or 894,000 of them, will be adversely affected by the administration's proposal.

 

You have not addressed that point, except to declare it invalid based on a partisan assessment that ignores obvious factors (see below). You've instead raised a discussion about what the impact of the full tax cuts has been and may be in the future. And supported it with an ad hominem attack on my intelligence. I don't care to discuss that issue with you on those terms. Nor will I allow you to last-word me with a straw-man subject change.

 

 

because every single taxpayer saw a benefit from the tax cuts on their bottom line.

 

And I asked you to support this comment with numbers and evidence. You have not yet done so.

 

THAT I'll address. I can support that by simply pointing out that the reason the Obama administration is giving for its support for extending the tax cuts for families earning under $200,000 is so that they won't get hit with an effective tax increase during our ongoing economic crisis.

 

Quoting President Obama from a speech he gave just yesterday:

 

I’ll give you one final example of the differences between us and the Republicans, and that’s on the issue of tax cuts. Under the tax plan passed by the last administration, taxes are scheduled to go up substantially next year -- for everybody. By the way, this was by design. When they passed these tax cuts in 2001 and 2003, they didn’t want everybody to know what it would do to our deficit, so they pretended like they were going to end, even though now they say they don't.

 

Now, I believe we ought to make the tax cuts for the middle class permanent. (Applause.) For the middle class, permanent. These families are the ones who saw their wages and incomes flat-line over the last decade -– you deserve a break. (Applause.) You deserve some help. And because folks in the middle class are more likely to spend their tax cut on basic necessities, that strengthens the economy as a whole.

 

In other words, those Americans saw great benefit from the tax cuts, and he wants them to keep those benefits.

 

Source:

http://www.cleveland.com/open/index.ssf/2010/09/transcript_of_president_obamas_1.html

 

(It's about halfway down the page.)

[CharonY]

In this regard THIS is rather interesting.

 

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.

 

This indicates that those being taxed are also those with the biggest money on their side. From the OP I am not sure whether paying a bit more in taxes would suddenly put these business in a tight spot, or rather the individuals owning these companies.

 

And now to the bottom line: Would raising their taxes be a job-killer? That is less clear. Some research suggests that higher tax rates actually encourage small business formation. Why? Because these firms allow their owners to shelter lots of income, behavior that is more lucrative when rates are higher. Other research suggests that higher rates do retard investment and hiring by existing firms. Donald Bruce and Tami Gurley-Calvez, who study small business for the Hudson Institute, have written a nice review of all these issues.

 

Edit: I think Obama did focus in his campaign on not raising taxes for anyone with an income less than 250k. So maintaining parts of the tax cuts should not come as a surprise. Well, maybe with him being a politician it should.

Edited September 10, 2010 by CharonY

[Marat]

Also, refusing to impose tax increases on anyone earning up to $250,000 a year is hardly a very left-wing program, since those earning that much have an income six times higher than the average American. The GINI index measures the relative equality of wealth distribution throughout a society, and on this list the U.S. has one of the worst maldistributions of wealth of any major economy. By keeping tax increases off of people earning up to six times the average income, the present program will do little or nothing to correct the wealth imbalance in the U.S.

[Pangloss]

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.

 

How the word "only" gets to be at the front of that quote is beyond me. There are "only" ~14.5 million Americans presently unemployed. Economists point out that when we "only" add 40-70k jobs in a month we're not keeping up with population growth, and that we have to add hundreds of thousands of jobs per month to return to where we were.

 

So I appreciate the second source, and I wonder why it would make sense to anyone to hurt 900,000 businesses during a stalled recovery.

 

 

However, that relative handful of business owners will report $400 billion, or almost 44 percent of all the business income included in individual returns.

 

The TPC is using a weak argument here. That's an average of only ~$444,444 in income per business (400B/900k), and presumably on a curve with most of them down towards the bottom nearer to that 250k minimum mark. These are small businesses. Sure, they're a little bigger than the typical shopping mall kiosk, or even a small, hole-in-the-wall restaurant, but not much bigger than that.

 

 

I am not sure whether paying a bit more in taxes would suddenly put these business in a tight spot, or rather the individuals owning these companies.

 

Also, refusing to impose tax increases on anyone earning up to $250,000 a year is hardly a very left-wing program, since those earning that much have an income six times higher than the average American.

 

(I think Marat meant over 250k.) The thing you guys are missing is that these are still small companies. These are local businesses with 20-60 employees. The company earns more than $250,000 per year. This is a very common scenario and it's how companies get started -- in fact it's the traditional American "family business" model.

 

My wife's family's business is a perfect example. She has a subset of their employees organized into a sub-chapter S, which is what we're talking about -- a company that looks and acts (for tax purposes) like an individual. The "company" earns a little over Obama's 250k mark, but her take-home is only a fraction of that (I don't want to get into personal income here, but let's just say that it's well under six figures and leave it at that).

 

And I'm just a college instructor, so as a family she and I together will bring in less than Obama's "wealth" mark. But because of the way this is phrased we'll see a huge increase in taxes because of the amount of money that her company brings in. That will have a direct impact on hiring and firing. How can it not? We certainly can't absorb the increase.

 

And as I say, this is how American business at the low end is typically done. Just look at that figure -- 900 thousand businesses will be affected by this. That means that if the average number of employees is 20 (I'm just guessing here, but remember, they have to earn more than 250k, so they're going to typically have at least a couple dozen employees), then something like 18 million Americans work for a company that will be affected by this tax increase.

 

I don't mean to suggest that that many people would be laid off, but is it really that far-fetched to speculate that this will lead to, say, tens of thousands of layoffs, given these numbers? I spent most of a 20-year career in IT consulting working with companies like this. I know how these people think and how close to the line they tend to run. IMO Obama's playing with real fire here.

Edited September 11, 2010 by Pangloss
changed "than" to "then" just before the bold

[Mr Skeptic]

Some of that money could go back to job creation which would make it an overall gain in jobs.

 

Incidentally, the way taxes usually work is that there is no big sudden jump, so people earning $250,001 might be affected, yes, but only unnoticeably more than someone unaffected earning $249,999 who would be unaffected, and would furthermore still be better off then them.

[CharonY]

I am not sure about the details about the way income would be taxed and whether her AIG would thus fall under this bracket, but let us for now assume (or try to get to the details of taxation, if you are interested later on) that a total of 900,000 individuals with a business income would have an increase of taxes to pre-Bush times.

This could be interesting for you. Regardless whether the taxable income of your wife is more than 250,000 (it would be significantly higher than the gross income, of course) it still means that over 90% of business are unaffected. As such iNow's point stands. I.e. it is clear that the majority of businesses are not affected.

From what I see, the basic idea is to get rid of the tax cuts for the top and give those below them a sweet spot to survive.

Link.

 

The question is how negative the effects are really to be and how much not having that tax revenue may hurt. That is, if the revenue is used to support small businesses or is used in a somewhat prudent manner.

Edited September 10, 2010 by CharonY

[Pangloss]

Sure, I agree that the majority of businesses are unaffected, I'm simply pointing out two things: The effect extends well below the level of wealthy people and right into the middle class, and the president's proposal could have an extremely adverse effect on the recovery. Experts have been touting the effect of his proposal as negligible and unimportant, but here we are seeing serious evidence to the contrary.

 

But I'm keeping an open mind about it. I'm concerned, I'm not passing judgment.

 

I will say this, though: While I'm not claiming this is the goal, I can't help but observe the fact that eliminating small businesses that are run in this manner is a wonderful, holy-grail-level dream of the progressive movement. Union labor no iron in this fire presently, but what a wonderful opportunity for expansion that would be if they could get everyone employed by giant mega-corps that are all at least partly owned and tremendously regulated by the federal government.

 

Keep going in that direction and I may have to start attending a few Glenn Beck rallies myself.

[swansont]

That's not my "framing", it's the statement of the non-partisan Tax Policy Center, which supports allowing them to expire on the most expensive earners, extending them only for middle-income earners (i.e. they support President Obama's and Democrats' plan). This is supported by the link I provided.

 

But even if it were a smaller number, could we really afford to let half a million businesses face three-percent tax increases leading to (as claimed by two examples in that story) 2, 3, 4 or more layoffs per company?

 

Do you have any evidence to suggest that the number is less than, say, 100,000, which would only produce, say, 200,000 job losses? Or that it might be an even smaller number? Because that claim by the Tax Policy Center seems to be what's informing the Democrats' main party line, so it doesn't sound like they have any such evidence.

 

Here's what I don't get. We tax profits, right? The businessman who said that he would lose ~$120k to additional taxes is paying about 3% more in taxes. Which means his business makes upwards of $4 million a year in profit. (Also, presumably he does this because paying corporate tax instead of declaring it as income is cheaper, and would continue to be cheaper)

 

So if he has to pay more in tax, why would he fire people, which means his company does less business and makes less of a profit? How does he win, or at least break even, by doing that? The only way this makes sense is if these workers aren't actually working very much, and this makes it cheaper to fire them rather than keep them on the payroll.

 

BTW, it's utterly bat-spit crazy that Krugman is saying that the government gave $680 billion to 1,000 people. Every single taxpayer in this country saw a benefit from the tax cuts -- even you. And certainly the Tax Policy Center considers it incorrect. I can't imagine why you would see that as "more informed".

 

 

Krugman didn't say that. He didn't even come close to saying that. The statement was in the future tense, not the past, he said majority, not all, and your numbers are way off.

 

[T]hese same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

 

He's saying that more than $360 billion would be going to the richest people, the one-tenth of one percent, and that's more than half of the tax cuts. And if you expand this (using the analysis of the non-partisan Tax Policy Center) to include all of the richest 1%, it's around $640 billion. Does 640/680 = 94% not count as "nearly all?"

[Pangloss]

The businessman who said that he would lose ~$120k to additional taxes is paying about 3% more in taxes. Which means his business makes upwards of $4 million a year in profit. (Also, presumably he does this because paying corporate tax instead of declaring it as income is cheaper, and would continue to be cheaper)

 

So if he has to pay more in tax, why would he fire people, which means his company does less business and makes less of a profit? How does he win, or at least break even, by doing that? The only way this makes sense is if these workers aren't actually working very much, and this makes it cheaper to fire them rather than keep them on the payroll.

 

We're looking for businesses to expand. Expansion is a speculative affair, based on growth that's hoped-for, which means that additional cost is being incurred in the short term. But even setting aside expansion, actual employment probably never precisely matches output with 100% efficiency, because the variables aren't calculable (sick days, for example). This would seem to match the familiar meme about workforce cutbacks forcing remaining employees to work harder and for longer hours.

 

(Do we actually pay taxes based on profit, btw? I thought it was based on total revenue.)

 

--------

 

Regarding Krugman, I'm not interested in debating the effect of the full tax cuts posed as a rebuttal to the president's plan, because that isn't the president's plan. However, if you're just saying that the full tax cuts benefit the wealthy more than the middle class, consider it said.

[swansont]

We're looking for businesses to expand. Expansion is a speculative affair, based on growth that's hoped-for, which means that additional cost is being incurred in the short term. But even setting aside expansion, actual employment probably never precisely matches output with 100% efficiency, because the variables aren't calculable (sick days, for example). This would seem to match the familiar meme about workforce cutbacks forcing remaining employees to work harder and for longer hours.

 

(Do we actually pay taxes based on profit, btw? I thought it was based on total revenue.)

 

If we taxed based solely on revenue, there would be no need for accountants.

 

If the other workers are going to have to work longer and harder, they are probably going to be paid more, if they are on hourly wages, at least. The "we'll have less money to expand" argument makes sense, and was made by one of the interviewees, but that's one of the reasons for having a threshold. You aren't in that position unless you already have a significant amount of money already.

 

Regarding Krugman, I'm not interested in debating the effect of the full tax cuts posed as a rebuttal to the president's plan, because that isn't the president's plan. However, if you're just saying that the full tax cuts benefit the wealthy more than the middle class, consider it said.

 

You brought it up, but OK.

 

 

———————

 

 

I'm calling BS on the 894,000 number, in terms of impact on employment. What we really want to know is how many employers are affected. Luckily, this issue of small business tax came up in the past two elections, so there's already work debunking it. The problem is that ABC probably asked the wrong question: how many small business owners fall into the top tax rates. The problem with that is that anyone who reports any business income is included, even if they earned just a dollar and/or have no employees, e.g. it includes people like the President, who made money from his book but has a job; his "small business" has nobody else on the payroll. If 2.5% represents 894,000 small businesses, then there must be more than 35 million small businesses, who, at best could employ an average of about 4 employees (10% unemployment is about 15 million workers, so we have 150 million workers, and 150/35 = 4.3. And there are big companies out there who employ millions) For evey small business which employ dozens of people, there have to be a whole lot which employ just one. And some of those make more than $200k (or $250k filing jointly)

 

McCain's claim struck us as wildly improbable the first time we heard it because we debunked a much less expansive claim that President Bush made about John Kerry in 2004. Bush ran a TV ad saying that Kerry's proposal to raise taxes on persons making more than $200,000 a year would affect 900,000 small-business owners. We found Bush's number to be far too high. We noted that Bush was counting as a "small-business owner" anyone who reported even $1 of business or partnership income, regardless of how the taxpayer made their living. At that time, the Urban-Brookings Tax Policy Center estimated that a total of 471,000 small-business employers could be affected.

 

http://www.factcheck.org/elections-2008/mccains_small-business_bunk.html

 

 

There are some numbers here, though it does not break down quite the way that would be most useful, but you can see that for the income levels in question, only ~25%-30% of these people made more than half of their money from their business, since the numbers are from anyone who reported a business gain or loss.

 

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1790&DocTypeID=7

[pioneer]

The problem is too much spending. Here is the analogy. The stay home wife decides, during tough economic times, to replace the furniture in the house, even when the old furniture is fine. This will make her feel better and she will be the envy of the neighborhood. To do this, she decides her husband now needs to get a second job. He was down to 50 hours per week, because they had all they needed. But after this new spending spree, she says he will now need to go back to 60 hours.

 

The Republicans are the husband who is expected to work to support the house, while the Democrats are like the wife who stays at home to care for the family. This is also an important job. The current wife may have good intentions but she has no sense of cost and the effort needed to pay. Maybe she needs help so she can gain a sense of perspective. The government is inefficient and does not know how to earn money, other that maybe the lotteries. So maybe, the wife working to support the extra expense is out of the question. The other possible solution is she has make up the difference by cutting frills out of the family budget. This may mean no manicures, no new clothes, no eating out, no fancy vacation etc, until she recovers her spending spree. Once she has to give up things, she will then better be able to weight future purchases.

 

The entitlement mentality has reached into the government, who now feels entitled even to the point of extreme family debt. The husband may have spoiled his wife and will have to accept some responsibility. So maybe the compromise is he works 5 extra hours and she has to lose some of her frills.

[jackson33]

We also need to distinguish wealth from income. Income is what people earn from work, but also from dividends, interest, and any rents or royalties that are paid to them on properties they own. In theory, those who own a great deal of wealth may or may not have high incomes, depending on the returns they receive from their wealth, but in reality those at the very top of the wealth distribution usually have the most income. (But it's important to note that for the rich, most of that income does not come from "working": in 2008, only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries. See Norris, 2010, for more details.)[/Quote]

 

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

 

Noting, that less than one fifth, of earned income from your "so called" wealthiest comes in the form of wages, four fifths is coming from some form of investments. I think you would probably find this no less true down the line of actual wealth, including a good many Americans, now on Social Security, no income other than through investments. The Bush Tax cuts, in effect generated investments in Corporate America, which by uncertainty today has slowed and if turned back to the rates of 2000 will be permanently reduced. Earned income, dividends, earned interest come from growth (most of that 4/5ths). Said another way, for a person to put at risk -X$- each person has an expectation for returns, according to their position in life. Since ALL other taxes (Local/State) have been increasing, while the Federal has been decreasing, what was acceptable in from 2001-2010, is not IMO comparable to what would be acceptable in 2011.

 

At the risk of upsetting iNow, though introduced by Pangloss into this thread, a large percentage of Tax filers, that pay taxes in fact have no employees at all. This is a 2002 survey, but can give you a good understanding of the US Corporate structure.

 

About three quarters of all U.S. business firms have no payroll. Most are self-employed persons operating unincorporated businesses, and may or may not be the owner's principal source of income. Because nonemployers account for only about 3.4 percent of business receipts, they are not included in most business statistics, for example, most reports from the Economic Census. Since 1997, however, nonemployers have grown faster than employer firms. [/Quote]

 

http://www.census.gov/epcd/www/smallbus.html

 

Where small employers come into the picture is through "start ups" or "growth" of a business which for all practical purposes has ceased and even in buying an existing business (was my thing) to maintain jobs, has been literally shut down, in most locations. To emphasize a point no one is willing to invest/risk dollars in the current economical environment.

[pioneer]

One effect that is often overlooked, behind all the tax hype, is the business world creating the need for the government to spend. One way to explain this is by using a family analogy. A new business starts up that makes a new style of tee-shirt. With the proper marketing and advertising the new product catches on to become a fad. This is an example of the supply side creating subjective demand. People did not know they needed this tee-shirt, until the supply side made them subjectively feel, they needed to demand it.

 

With the fad now hot and heavy, the children in your home now need to have at least one, with the high fad demand making these tee shirts scarce, causing the price to rise. This is business utopia. Because the children are in such subjective stress, mother may have to add a new expense to the household or this would be the end of the world for her children.

 

Relative to the government, there are supply side inducements that have created enhanced subjective demand and need. The liberal aspect of the government then tries to satisfy the subjective need to include even those who can not afford to be part of the fad, like a good mother, increasing family expenses.

 

As an example, one growing industry during this hard economic time is health care. If this growth was based on rational supply and demand, this growth should reflect higher sickness rates increasing the demand for good and services. On the other hand, if it is based on supply side inducement of subjective demand for goods and services, sickness can be flat or decreasing and the industry can still grow rapidly via the enhanced subjective demand.

 

To allow all to join the enhanced subjectivity of the fad; end of the world, the liberal government tried to extend the fad to all. The government tries to make sure everyone has a tee shirt even those who may not be able to afford one. Now the free market is being called upon to pay the tab. But it misses the mark, since not all businesses benefit by the profitable tee-shirt fad. So there is a resistance to paying twice, once for the inflating tee-shirts for their employees and once to offset the social cost of the tee-shirt.

Edited September 12, 2010 by pioneer

[Pangloss]

I'm calling BS on the 894,000 number, in terms of impact on employment. What we really want to know is how many employers are affected. Luckily, this issue of small business tax came up in the past two elections, so there's already work debunking it. The problem is that ABC probably asked the wrong question: how many small business owners fall into the top tax rates. The problem with that is that anyone who reports any business income is included, even if they earned just a dollar and/or have no employees, e.g. it includes people like the President, who made money from his book but has a job; his "small business" has nobody else on the payroll. If 2.5% represents 894,000 small businesses, then there must be more than 35 million small businesses, who, at best could employ an average of about 4 employees (10% unemployment is about 15 million workers, so we have 150 million workers, and 150/35 = 4.3. And there are big companies out there who employ millions) For evey small business which employ dozens of people, there have to be a whole lot which employ just one. And some of those make more than $200k (or $250k filing jointly)

 

http://www.factcheck.org/elections-2008/mccains_small-business_bunk.html

 

There are some numbers here, though it does not break down quite the way that would be most useful, but you can see that for the income levels in question, only ~25%-30% of these people made more than half of their money from their business, since the numbers are from anyone who reported a business gain or loss.

 

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1790&DocTypeID=7

 

This is a great start, because if I'm reading you right I think what you're saying here is that just because 894,000 "businesses" are "affected" by the effective increase in taxes (if that number is correct, and if that's what they are) doesn't mean that all 894,000 of them will be severely or even adversely affected, so it doesn't logically translate to 894,000 businesses laying off several workers each.

 

I agree that this stands to reason based on what we see here. One hesitation I had is that the FactCheck article is over two years old, and the TPC's changing assessments were more recent. But I didn't see anything specific about it that I could say was incorrect. Of course there's a gray area here, because we're talking about actions of congress that haven't even taken place yet (and in fact the odds are pretty darn good that they won't even act). But none of that seems to change your point (if I've read it right).

 

I'll continue to follow this, but I'm not quite as concerned as I was a week ago.

[swansont]

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

 

Noting, that less than one fifth, of earned income from your "so called" wealthiest comes in the form of wages, four fifths is coming from some form of investments.

 

Stock options and grants are a form of non-salary compensation. It's disingenuous to suggest that millions of dollars of income from this is from an "investment;" it's a way of funneling more money to executives and get around the $1 million limit on corporate income tax deductions for executive pay. The article also notes that it is not including rents and royalties as income, either. So if you are e.g. an author, or own and run an apartment building, your income in not being counted in this assessment.