Sunday, September 26, 2010

Pledge To America: #4

In the section of the Pledge to America entitled "Permanently Stop All Job-Killing Tax Hikes," the GOP proposes "A Plan to Create Jobs, End Economic Uncertainty and Make America More Competitive," suggesting

We will help the economy by permanently stopping all tax increases, currently scheduled to take effect January 1, 2011. That means protecting middle-class families, seniors worried about their retirement and the entrepreneurs and family-owned small businesses on which we depend to create jobs in America.

The GOP is correct. There are tax increases which are "currently scheduled to take effect January 1, 2011"- just as President George W. Bush and the Republican-controlled Congress planned. As Michael Cohn explains on WEBCPA

The two laws in question were the Economic Growth and Tax Relief Reconciliation Act of 2001, also known as EGTRRA, and the Jobs and Growth Tax Relief Reconciliation Act of 2003, also known as JGTRRA. Back when they were the majority party, Republicans managed to squeak the bills through the Senate using the same budget reconciliation tactics they tried to fend off for the health care reform bill this year. The budget reconciliation strategy required the tax cuts to sunset by Dec. 31, 2010, after which they were supposed to revert back to prior levels, in part to make up for the budget shortfalls they would inevitably cause.

There is no reason to believe that the Repub Party leaders fret about "seniors worried about their retirement." Republicans have struggled against old-age insurance from the beginning: Medicare described by Ronald Reagan (1961) as the destruction of liberty, by Barry Goldwater (1964)as "socialized medicine;" by Bob Dole (1965) as unworkable, and by House Speaker Newt Gingrich (1995) as a target for dramatic cuts. A privatization plan for Social Security hatched by President George W. Bush thankfully went nowhere, but now Representative Paul Ryan of Wisconsin has presented a roadmap to ration Medicare and Social Security, the former through a voucher scheme, the latter through privatization.

But the thrust of this subsection of the GOP's pledge is stopping tax increases on "the entrepreneurs and family-owned small businesses" because "we depend (on them) to create jobs in America." Fortunately, however, the Democratic tax plan would affect an infinitesimal portion of small businesses, as described in The New York Times earlier this month:

Internal Revenue Service statistics indicate that only 3 percent of small businesses would be subject to the higher tax, and many studies of previous tax increases suggest that it would have minimal impact on hiring.

According to the Joint Committee on Taxation, 97 percent of all businesses owners do not earn enough to be subject to the higher rates, which would be levied on income of over $200,000 for individuals and $250,000 for families.

Even among the 750,000 businesses that would be subjected to the higher rates in 2011, many are sole proprietors — a classification so amorphous it can include everyone from corporate executives who earn income on rental property to entertainers, hedge fund managers and investment bankers. Because 80 percent of America’s 32 million businesses are sole proprietorships, 90 percent of the tax cut would be derived from businesses without employees.

The administration (chart, from Ezra Klein, below) plans to increase income taxes on individuals earning over $200,000 annually and on households with annual income over $250,000. Republicans imply that this will harm the nation's small business climate

But much of the research over the last two decades has found that increases in top tax rates can lead to an increase in the formation of small businesses, as wealthy individuals apparently begin start-ups to avail themselves of the more generous tax breaks offered to businesses.

It was a country reeling from a recession partially engineered by Wall Street, an unpopular war (Iraq) and one (Afghanistan) growing in unpopularity, and a reviled president. Elected was a centrist president who now has been holding the line on middle class taxes, strengthening market-based health care, leaving large financial firms largely unconstrained by government, and generally following the advice of his generals in continuing wars launced by his Republican predecessor. And the Republican Party.... complains?

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