Media Missing in Action: Small Business and Obama's Awful Tax Increase

Well, Republicans have been screaming for days about how Obama's tax increase on those earning over $250,000 will kill small business.

It turns out that only 3% of the small businesses in this country would be affected. (Thank you Peter Orszag for this rather important fact that none of our useless media ever bothered to ferret out.)

When faced with that fact, a Republican changed tactics. Yes, that's true. But that 3% employs 50+% of all small business employees. So?

And, remember, we're talking about turning back the top marginal tax rate to where it was in 2000. Less than a 4% increase.

But we are supposed to believe that a 4% tax increase on 3% of the small businesses in this country will cause these business people to ... what? Shut down their businesses? No, I don't think so. Refuse to expand or hire new employees? That's kind of hard to see, too. Don't most businesses expand when there is increased demand for their products? So unless a tax increase is confiscatory - costs the company more than it can earn through expansion - I find it truly difficult to imagine this outcome either. (Any of you small business people earning more than $250,000, please let me know if I am wrong.)

This reminds me of an argument that I haven't heard in a couple of decades:that the progressive income tax on individuals will cause them not to seek promotions. Because promotions come with salary increases, usually, and some salary increases come with increased taxes. Now, I have never known anybody to turn down a promotion because of an associated tax increase. Again, if the increase totally wipes out the salary increase, I suppose a person might refuse the promotion - but being primates, I suspect most of us would still go for the promotion.

Republicans and Tax Cuts (Obama's first budget)

Well, Obama's 2010 budget has been announced and, as usual, Republicans are apoplectic about the tax increase on the rich which will cause small businesses to fail all over the country, kill entrepreneurship, etc.. And how big is this tax increase? 3.9%. The top marginal tax rate for people earning over $250,000/year will increase from 36% to 39.6% - which won't kick in until 2011. Now, I know that COLs vary a lot around the country and I believe that, once we're out of the recession, we should all pay more for the government services we want. But this knee-jerk Republican hissy fit should be shown up for what it is. And if the reduced tax rates on dividends and capital gains remain in effect, this increase will, practically speaking, probably have even less impact.

Once upon a time, the top marginal tax rate in this country was 94%!* Now, the Republicans think 39.6% is too much. Indeed, during the battle over the stimulus package they wanted a 5% across-the-board cut. Tax cuts are the Republican answer to good times and bad times. It is, indeed, the only government action they approve of (except for defense and legislating morality, of course).

Republicans won't even raise taxes to pay for the one government function, defense, of which they approve - which is why Obama inherited a trillion-dollar deficit. The truth is that Republicans don't believe in government. They want to kill social security, medicare, medicaid, welfare, the NEA & NEH, the CDC, the NIH, the NSF, the FDA, etc. Indeed, if they could, they would kill every non-defense agency. And they figure the way to do this is to starve the government of money. But they know that if they tell the American public this is their objective, they couldn't get elected dog-catcher. They know Americans don't like to pay taxes (who does) but,while Americans differ on which government programs they approve of, all Americans use or want some government services. So Republicans talk about "waste, fraud, abuse" (of which there is nowhere near enough to end the deficit and at least one of which exists in every household in the U.S.). They talk about earmarks (which don't add money to the budget but direct it to pet projects). They talk about individual responsibility. They don't talk about the government programs they want to kill. And our ineffective media let them.

I have a challenge for you tax-cutting Republicans. Give me a tax rate, any tax rate (flat or progressive), which will satisfy you. 20%? 15%? 5%? 0%? And then tell me what government agencies you will shut down to balance the budget.

*Here are three web sites with historical tax rate information:
1.Top tax rates 1913-2003
2.Highest marginal tax rates 1913-2009.
3. Historical bottom and top tax brackets 1913-2000.

New Justification for a Progressive Income Tax

I agree with very little of what Yglesias writes, but he makes a good, and interesting, point here about why we should tax the rich more:

But speaking strictly as an ideologue, I don't necessarily have a problem with the government intervening to bail a bunch of rich guys out when their own bad decisions blow up in their faces if that's what's needed for the health of the overall economy, but this sort of thing is one of several reasons why I think the very rich should pay high tax rates and we shouldn't be happy about the prospect of ever-growing inequality. At a certain level, the game is rigged and you're not really bearing any risk.

I would add the fact that the rich also get much preferential treatment because their sources of income (capital gains, dividends, etc.) are taxed at lower rates than the earnings of the rest of us who work 50-60 hours/week and just get by. Oh, and, don't forget that the vast majority of their income is not subject to social security taxes.