Recently, a slew of Republicans have tried to make their case for extending the Bush tax cuts for the wealthy by claiming that doing so would actually increase revenues for the federal government. “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy,” claimed Senate Majority Leader Mitch McConnell (R-KY), adding that this is “the view of virtually every Republican.”
“When President Bush imposed those tax cuts, they actually generated economic growth, they expand the economy, they expand tax revenue,” said Rep. Mike Pence (R-IN). Karl Rove even went so far as to claim that the Bush tax cuts led to “the largest amount of revenue being received by the government.”
Yesterday, I spoke with American Action Forum president Douglas Holtz-Eakin, formerly Congressional Budget Office director and an adviser to the McCain 2008 presidential campaign, who correctly pointed out that there is “no serious research evidence” backing up the GOP’s positon:
I have never been in the camp that believes that quote ‘tax cuts pay for themselves.’ There is no serious research evidence to suggest that. The work we’ve done on what would happen if you were to sort of raise or lower taxes suggest about a 20 to 30 percent offset, depending on how you do it. And I think that’s in the mainstream of the thought.
That, however, was where our agreement ended. Holtz-Eakin wants to see all of the Bush tax cuts extended because of their supposed effect on small businesses. I noted that fewer than two percent of small businesses file in the top two income tax brackets, to which Holtz-Eakin replied that the more important statistic is that half of business income is subjected to those higher tax rates.
While that’s true, the same report finding that half of net business income is in the top two tax brackets explicitly noted that “these figures for net positive business income do not imply that all of the income is from entities that might be considered ‘small.’” Yesterday, Treasury Secretary Tim Geithner called the assertion that allowing the Bush tax cuts for the rich to expire would hurt small businesses “a political argument masquerading as substance”:
Now some have argued that even if only a few percent of small business owners make over $250,000, these few make up a vast amount of supposedly small business income. This argument apparently counts anyone who receives any type of partnership or business income as if they were a small business. By this standard, every partner in a major law firm and every principal in a major financial institution would count as a separate small business. A CEO who has board fees or speech fees would also count as a small business owner under this overly broad definition.