Bush Tax Cut Myths and Fallacies (1)

House Speaker Nancy Pelosi was asked about the future of the Bush tax cuts of 2003.

Those tax cuts are scheduled to expire at the end of 2010.  If Congress doesn’t act tax rates will increase substantially in 2011.  Ms. Pelosi’s answer echoed the political-media establishment.  She wants to extend the tax cuts for lower income groups but not for “the rich.”

High end tax cuts have not created jobs, they have increased the deficit and they should be repealed.

In this series we’ll consider her assertion, starting with jobs.

Private sector jobs are not created by Presidents, Congress or government.  They are created when businesses risk their capital resources on expansion.  And small businesses create most new jobs.  

Any tax on a small business reduces the resources its owners can invest in expansion and job creation.  Government doesn’t create jobs but it can encourage more job creation with lower rather than higher taxes.  So-called “high end” taxpayers, those earning more than $200,000 that Obama and Pelosi have targeted for tax increases, are mostly small businesses.

At any given time the level of taxation is only one of several economic balls in the air.  Business expansion and job creation may also be affected by new technologies, demographics, prices, wars, interest rates, and a host of other factors.

But to prove her assertion that the Bush tax cuts did not help businesses create more jobs from 2003 to 2007, Ms. Pelosi will have to come up with some dazzling, counter-intuitive arguments.

As everyone is painfully aware, Job creation turned into job losses in 2008.  But there is no reasonable argument that the tax rate reductions of 2003 caused the banking and mortgage crises of 2008 that decimated the economy.  Nor, is there any coherent argument that the big tax increase on small businesses and investors, now scheduled for January, will somehow help them create more jobs in 2011.

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