Over 80% of Bush tax cuts reward wealth
By Cliff Montgomery – Nov. 17th, 2012
More than 80% of Bush tax cuts reward wealth rather than small business owners or labor, according to a study released by one of the nation’s leading think tanks.
The Center on Budget and Policy Priorities (CBPP) is one of the most respected think tanks in the D.C. area. Washington Post columnist Ezra Klein declared CBPP to be 2011’s “Think Tank of the Year,” and added that the Center is the “fastest, fairest, and smartest policy think tank in Washington.”
In July The Center released its eye-opening study, which investigated the claims of those who say that ending the Bush-era tax cuts will ‘destroy small businesses’ and ‘wreck a fragile economy’. Among its revelations:
- · Claims of Serious “Small Business” Impact Use A Misleading Definition
· A Much More Reasonable Definition Shows Few Small Businesses Would Be Affected
· In a Weak Economy Businesses Most Need Stronger Sales, Not Tax Cuts.
Below, The American Spark provides a number of salient quotes from the CBPP report:
“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.
“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.
“Charges that any tax increases on people making over $1 million a year, such as Senator Sheldon Whitehouse’s proposal to implement the ‘Buffett Rule,’ would inflict injury on many small businesses rest on the same misleading definition of small businesses.
“Contrary to these claims, an extension of the high-income Bush tax cuts would, in essence, constitute a massive tax cut for very wealthy individuals who overwhelmingly aren’t small business operators.
“Analysis by the Urban Institute-Brookings Tax Policy Center finds that extending the tax cuts for people over $250,000 of income ($200,000 for single filers) would overwhelmingly benefit the highest-income taxpayers: 82 percent of the value of the tax cut would flow to filers with more than $1 million in adjusted gross income, who would get an average tax cut of $164,000 a piece.
“The arguments against allowing the high-end tax cuts to expire on schedule echo those made against President Clinton’s proposed 1993 tax increases, which set marginal rates at the levels to which they are set to return when the Bush rate cuts expire.
“Critics claimed at the time that those tax increases would seriously harm economic growth and even send the economy back into recession. As it turned out, job creation and economic growth proved significantly stronger following the 1993 tax increases than following the 2001 Bush tax cuts. Further, small businesses generated jobs at twice the rate during the Clinton years than they did under the Bush tax code.
Claims of Serious ‘Small Business’ Impact Use Misleading Definition
“The frequently cited claim that letting the high-income tax cuts expire would seriously harm small businesses because ‘roughly half of the income of small businesses’ is taxed at the top two tax rates relies on a highly exaggerated definition of small business owner. This definition includes any taxpayer who receives any income from any ‘pass-through’ entity (that is, an entity that does not pay corporate income tax on its profits but instead passes them through to its owners, who pay tax at the individual rates). […]
“The misleading nature of this broad definition of small business is perhaps most starkly highlighted when one looks at the IRS-published data on the highest-income people in the country. Of the top 400 people — who received $19.8 billion in S corporation and partnership net income in 2009 — 237 would be counted as small businesses.
“These individuals, whose incomes averaged more than $202 million in 2009, hardly represent what most Americans think of when they hear the term ‘small business owner.’
“Under this definition, both President Obama and Governor Romney would have counted as small business owners in 2011.
“President Obama’s adjusted gross income of $789,674 included $441,369 in book royalties (net of commissions) – royalties are reported as pass-through income, so President Obama would count as a small business owner.
“Governor Romney’s adjusted gross income of $20 million included $110,000 in author and speaking fees reported as pass-through income, so he, too, would count as a small business owner. […]
Conclusion
“Extending the tax cuts on incomes in excess of $250,000 would add nearly $1 trillion to deficits over 2013 to 2022, but benefit only about the highest-income 2 percent of households.
“The biggest benefits would flow to the very highest-income people: as Figures 3 shows, more than 80 percent of the value of the upper-income tax cuts would go to people who make more than $1 million a year.
“As discussed above, very few of the high-income taxpayers who benefit from the upper-income tax cuts are in fact ‘small businesses’ in the way the term is commonly understood. Moreover, there is no good evidence that cutting the taxes of small business owners is an effective way to boost hiring or growth in either the short run or the long run.
“Policymakers ought not let myths and lobbyists’ slogans regarding high-income taxpayers and small businesses drive them toward a costly policy that would add heavily to deficits while delivering little economic benefit.”
