Over the last several decades, the financial sector has made up a larger and larger percentage of the U.S. economy, eventually accounting for 40 percent of corporate profits before the financial crisis of 2008. By the end of 2011, even as Americans on Main Street were still grappling with the effects of the Great Recession, finance made up a larger percentage of the economy than it did before the crash.

The financial sector is supposed to promote growth by allocating capital to useful parts of the economy, but is that what it’s really doing? In a new working paper for the International Monetary Fund, Ugo Panizza, an economist with the United Nations Conference on Trade and Development, and two other economists found that a smaller financial sector can actually be good for economic growth:

In a new Working Paper titled “Too Much Finance?” and published by the International Monetary Fund, Jean Louis Arcand, Enrico Berkes, and I use various econometric techniques to test whether it is true that limiting the size of the financial sector has a negative effect on economic growth. We reproduce one standard result: at intermediate levels of financial depth, there is a positive relationship between the size of the financial system and economic growth. However, we also show that, at high levels of financial depth, a larger financial sector is associated with less growth. Our findings show that there can be “too much” finance. While Greenspan argued that less credit may hurt our future standard of living, our results indicate that, in countries with very large financial sectors, regulatory policies that reduce the size of the financial sector may have a positive effect on economic growth.

The authors add that “our analysis suggests that there are several countries for which smaller financial sectors would actually be desirable,” as a financial sector that is too large increases the odds of a crisis and increases the misallocation of capital to less useful sectors of the economy. But of course, any efforts to shrink some of the financial behemoths in the U.S. — or to separate out risky trading from more traditional lending — are met with howls from conservatives.

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.

Members of the House Agriculture Committee this week will be marking up a “compromise” version of this year’s farm bill, which includes cuts to the Supplemental Nutrition Assistance Program (SNAP) — i.e. food stamps — that would result in two to three million people losing their food assistance. 45 percent of the proposed cuts to federal spending in the bill come from reductions in the food stamp program.

The bulk of the cuts would be a result of eliminating what is known as “categorical eligibility,” which gave states the flexibility to enroll families in SNAP even if their assets (such as a car or modest savings) or income push them barely above the line to qualify for assistance. According to the Congressional Budget Office, such a move would not only boot 1.8 million people off of food stamps, but would knock 280,000 children off of the free school lunch program:

The legislation would restrict categorical eligibility to only households receiving cash assistance. Based on data from the Department of Agriculture, CBO estimates that about 1.8 million people per year, on average, would lose benefits if they were subject to SNAP’s income and asset tests. In addition, about 280,000 school-age children in those households would no longer be automatically eligible for free school meals through their receipt of SNAP benefits. Assuming enactment on October 1, 2012, CBO estimates that this provision would lower direct spending by $11.5 billion over the 2012-2022 period.

These families’ free lunch benefits are tied to their receipt of SNAP funds. As the Center on Budget and Policy Priorities noted, “A typical working family that qualifies for SNAP benefits due to categorical eligibility is a mother with two young children who has monthly earnings just above the program’s monthly gross income limit ($2,008 for a family of three in 2012).”

Republicans have mounted quite the campaign to convince the public that food stamp spending is somehow out of control, and this “compromise” bill buys into the worst of that rhetoric. Many House Democrats are voicing their objections. “This is a bill that robs the poor to pay the rich,” said Rep. Rosa DeLauro (D-CT). “This bill is an outrage.”

African-Americans were twice as likely as whites to get hit by the housing bust and its resulting foreclosures, as big banks pushed a disproportionate number of blacks into sub-prime loans at the height of the housing boom. And now, the effects of that disparity are wreaking havoc on black families in a way that will hurt them for decades, as analysts fear that the already wide gap in credit scores for white and black borrowers was likely exacerbated by the crisis.

According to Federal Reserve data, blacks were already less likely to hold a prime credit score. When new Federal Reserve data is released, analysts expect the existing gap to have grown even wider, the Washington Post reports:

The Federal Reserve is collecting data on how the recession has affected credit scores by race, in what is expected to be significant research on the issue. But the widespread belief among economists, consumer advocates and community leaders is that black Americans are falling behind.

And for black Americans, that means they are starting at a disadvantage. Even near the height of the country’s economic boom, blacks had lower credit scores than whites. Data collected by the Federal Reserve from 2003 — in the most comprehensive study on race and credit scoring to date — showed that less than a quarter of blacks had prime credit scores. Meanwhile, about 65 percent of whites were in this top tier.

The housing crisis, in effect, created a vicious cycle for black borrowers: because they were already more likely to have poor credit scores, they were thus more likely to take out sub-prime loans. Those loans were more likely to go bad, and the resulting foreclosures pushed credit scores even lower. But many blacks were also pushed into bad loans even when they qualified for prime loans, a form of discriminatory lending that has now decimated credit scores for previously-qualified black borrowers.

It isn’t just the housing crisis damaging credit scores; unemployment is too. “Research by VantageScore,” the Post notes, “found that the two biggest contributors to consumers’ deteriorating credit were the fall of home prices and unemployment.” And while the national unemployment rate is currently 8.2 percent, that would represent a historical low for black workers, for whom the unemployment rate (currently at 14.4 percent) has rarely dipped below 10 percent in the last half-century.

President Obama is planning to call on Congress today to extend the Bush tax cuts for another year, but only for those making less than $250,000. The Bush tax cut package is scheduled to expire at the end of the year, and of course, Republicans have said that they are only interested in extending all of the cuts, including those for the wealthy. That would mean spending billions of dollars on cuts where more than half of the benefit accrues to the richest 5 percent of households.

The administration, however, claims that it will oppose any extension that does not include the $250,000 cut-off. Obama adviser Robert Gibbs insisted yesterday that Obama is “100 percent committed” to ending the tax breaks for the wealthy.

Republicans, of course, will charge that raising taxes on the rich will inevitably harm economic growth and job creation. However, history has revealed that that’s simply not the case. As this chart shows, annual economic growth has been strongest when the top tax rate was higher than it is today:

Job creation has also been stronger when the top tax rate was higher:

Already, taxes on both the rich and investment income (which for the last few decades has been taxed at a lower rate than wage income) are at historic lows, but they didn’t lead to the job creation that was promised by the Bush administration:

So Republican claims about tax increases on the rich destroying the economy — which they make every time such a policy is suggested — are just fearmongering, with no evidence backing them up.