Taxing the Rich. Will it Depress Employment by Small Businesses?

 The Center on Budget and Policy Priorities in a post yesterday, disputes the claim that letting the Bush Tax Cuts expire on taxpayers earning over $250,000 will impact job creation by small businesses:

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.

 . . .

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.[27]  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.