President Obama today once again threw his support behind a plan that would extend the Bush tax cuts for the middle class but allow those for the rich to expire, with White House press secretary Jay Carney renewing Obama’s vow to veto any extension of the tax cuts for households that make more than $250,000 a year.
Predictably, Republicans, who oppose the expiration of the tax cuts for the rich, have blasted Obama’s plan as a tax hike on small businesses, even though the Joint Committee on Taxation estimated in 2010 that the expiration would hit only three percent of individuals with any business income, whether from an enterprise large or small. “Nearly a million small businesses” would get hit by Obama’s plan, which is “based on a political calculus, not an economic one,” Senate Minority Leader Mitch McConnell (R-KY) claimed.
But the GOP’s rhetoric when it comes to the Bush tax cuts and small businesses doesn’t match reality. The Bush tax cuts for the rich are actually a drag on small businesses because they eliminated built-in advantages over large corporations. As the Tax Policy Center notes, the cut in the capital gains tax included in the 2003 Bush tax cuts for the rich made the tax code friendlier to corporations by shifting capital away from entrepreneurs and “toward corporations.” The tax cuts also disadvantage small businesses by driving up the cost of capital through increased government borrowing.
McConnell’s claim that letting the top tax cuts expire will hurt the economy is also false. As ThinkProgress noted today, the current historically-low tax rates for the rich haven’t led to the investment and job creation promised by Republicans, and annual economic growth and job creation has actually been stronger when the top tax rates were higher than they are today.