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The Bush tax cuts and small business

Harry Reid says the Senate will consider the Bush tax cuts in September. What will they do about them? Hard to say. The options seem to be to extend most of them or all of them. Few seem to be thinking of substantially changing them, scrapping them or embedding them in a larger tax reform package.

So it goes, I guess. One of the reasons Democrats are so afraid to touch the tax cuts, even for the rich, is their purported effect on small business. Cue Howard Gleckman:

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. Do they fit your image of a small business owner? That, I suppose, is in the eye of the beholder.

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.

As Gleckman goes on to note, however, there's another wrinkle here: Businesses are constantly complaining about the debt. But few seem to be complaining about adding $4 trillion onto it over the next 10 years.

By Ezra Klein  |  August 5, 2010; 1:40 PM ET
 
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Comments

Would it be impossible to tell the difference between businesses filing on personal income tax forms and individuals, like fat cat CEOS?

It seems to me like that it would be possible to make that distinction, thus removing that objection.

Posted by: Kevin_Willis | August 5, 2010 2:07 PM | Report abuse

People's main complaint about debt has to do with the expectation that they will lead to higher taxes and thus slower economic growth.

Thus tax cuts now will always be embraced.

We can grow our economy out of any problem so long as we keep the role of the the federal government limited and keep taxes low.

Posted by: FastEddieO007 | August 5, 2010 2:15 PM | Report abuse

"But few seem to be complaining about adding $4 trillion onto it over the next 10 years."

Sure they are. They just happen to think that stopping the spending tsunami is a better way to do something about it than raising taxes.

Posted by: bgmma50 | August 5, 2010 2:22 PM | Report abuse

@Kevin_Willis : In a word, yes it is impossible. That is why Dick Cheney is a small business. Certainly it is not in the cards anytime soon. I haven't seen any republicans jumping up and down supporting making this distinction.

If you make money from investing, you can file as a small business. The current tax laws are skewed to help rich people not pay as much tax as the bottom 90% of people.

@fe007: keep taxes low--bush kept taxes low and created the worst recession since 1929. Taxes as a % of GDP are lower now than at any time since before WWII.

Posted by: srw3 | August 5, 2010 2:24 PM | Report abuse

@bgmma50:They just happen to think that stopping the spending tsunami is a better way to do something about it than raising taxes.

The only part of discretionary budget that has had a spending tsunami is the "defense" dept. I am ready to cut that significantly, but it won't make up the 4 trillion that the US is foregoing by extending the bush tax cuts. And why do they need extending? Because they could only explode the budget deficit for 10 years under reconciliation rules ( the first time they were used to add to the deficit.)

Posted by: srw3 | August 5, 2010 2:36 PM | Report abuse

so i have a small bookkeeping question. Do we call them the Obama Tax Increase in September or not until January?

Posted by: visionbrkr | August 5, 2010 2:37 PM | Report abuse

@vb: We should call it allowing the tax cuts to end just as the republicans who wrote the legislation to create the tax cuts designed it to.

Posted by: srw3 | August 5, 2010 2:41 PM | Report abuse

God forbid we go back to the hellscape of the 90s!

Posted by: AZProgressive | August 5, 2010 2:45 PM | Report abuse

"The only part of discretionary budget that has had a spending tsunami is the "defense" dept."

Oh please, so if it's not part of the discretionary budget, it doesn't count? Every time I turn around, Democrats are voting for stimulus packages, bailouts, payoffs to public employee unions disguised as jobs bills, and creating vast new entitlement programs. It's all spending, and there's been a tsunami of it.

"I am ready to cut that significantly, but it won't make up the 4 trillion that the US is foregoing by extending the bush tax cuts"

I'll tell you what, srw3. You guys cut spending first. I'll settle for going back to Bush level spending, and even let you have a go at defense. You do that, and we'll increase taxes second. Deal?

Posted by: bgmma50 | August 5, 2010 2:56 PM | Report abuse

srw3,
I know you are only know how to spout off talking points, but please inform us how low tax rates created (your word, not mine) the recession.

Posted by: novalifter | August 5, 2010 2:57 PM | Report abuse

@nova: Bush cuts tax cuts, deficits explode. Pretty causal relationship there, but that in itself didn't cause the recession.

I was responding to fe007's equally ridiculous point "We can grow our economy out of any problem so long as we keep the role of the the federal government limited and keep taxes low."

I was noting that keeping taxes low is no guarantee of prosperity, not that low taxes caused the bush recession.

Posted by: srw3 | August 5, 2010 4:10 PM | Report abuse

May I suggest that Dems should begin by not saying that they are taking up the Bush tax cuts. Those intentionally temporary tax cuts end this year. What is being taken up is consideration of what to do about the Bush tax INCREASES deliberately set to take effect in 2011. Democrats and those who support them should continuously refer to these as the Bush tax INCREASES whenever they discuss them publicly and whenever they discuss/answer questions on TV because that is what they are. We should not play into the idea that we are ending the Bush tax cuts. Bush and the GOP chose to end them deliberately and increase taxes in 2011 so that they could enact this fiscally irresponsible tax cut largely for the benefit of the wealthiest Americans. Please Ezra this post should be headlined the Bush tax INCREASES and small business. What Democrats are having to do is to decide what steps should be taken to prevent any harmful effects of the Bush tax increases on middle-income Americans and the nascent economic recovery while not making the problem of the long-term deficit worse. The whole dynamic of the discussion changes and it is an opening to discuss the failures of the last administration and its enabling GOP congresses. It puts the GOP on the defensive where it should be. Its another example of Democrats having to solve a GOP created problem. And Democrats should be repeating that over and over and over. It just might help in the elections.
All together now-what are we going to do about the BUSH TAX INCREASES.

Posted by: gregspolitics | August 5, 2010 7:08 PM | Report abuse

Way to go, Democrats. Let's see how many more opportunities you can seize before the next election to convince your supporters that you don't really subscribe to their principles and will abandon them the moment there's the merest hint of opposition or controversy.

Posted by: bjrubble | August 5, 2010 10:14 PM | Report abuse

^
|
|
"The power of holding two contradictory beliefs in one's mind simultaneously, and accepting both of them....To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies — all this is indispensably necessary."
George Orwell 1984

Posted by: bgmma50 | August 5, 2010 10:14 PM | Report abuse

Oops. that was meant for gregspolitics @7:08.

Posted by: bgmma50 | August 5, 2010 10:17 PM | Report abuse

Lets be clear about something....THE WORST RECESSION EVER WAS CAUSED BY AN UNWILLINGNESS OF CONGRESS TO STOP THE SCAM OF MORTGAGE COMPANIES OF TALLYING UP MANY MANY HORRIBLY BAD HOME LOANS AND PACKING THEM UP AND SELLING THEM OFF TO BIG BANKS WHERE THEY CONTAMINATED ASSET PORTFOLIOS ALL ACROSS THE COUNTRY.

...AND Nothing to do with the tax rates on American citizens and their businesses.

Many many politicians with a horrible fascist Marxist political agenda will do anything to convince you that the evil is that we are Americans who have practiced capitalism for 200 years. They need to be put in their place.

Posted by: FastEddieO007 | August 7, 2010 9:22 AM | Report abuse

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