Democrats Bring Absurd Claims to Debt Ceiling Debate

Would three percent less government spending be worse for jobs than a major tax increase on small business employers?

As the chart shows, the debt crisis is driven by spending and since Republicans were in control of Congress from 2001 through 2006 and Democrats were in control after that, neither party is blameless.

But the current Republican party – including nearly 100 Representatives who were not in the House during the wild spending spree – now gets it.  The GOP House has passed a budget with genuine, substantial spending cuts.  They demand that the President and the Democratic Senate agree to $2 Trillion in spending cuts in exchange for a $2 trillion increase in the debt ceiling.

However President Obama and the Democrats who control the Senate have simply ignored the House passed budget and will not agree to any spending cuts unless “the rich” including the small businesses most likely to hire new employees get hit with a tax hike, in the midst of this severe recession.

Treasury Secretary Tim Geithner recently answered questions at a House Small Business Committee hearing on the budget.  Here are some excerpts:

Question from Rep. Renee Ellmers (R.-N.C.): “You support raising taxes on those who make $200,000 or more…Those ARE our business owners.”

Secretary Geithner: “They’re three percent of your business owners.”

We’re disappointed to note that Geithner apparently does not visit Liberty Works, because we’ve been over this ground before.

It’s true that only a small portion of the total of all small business owners are in the over $200,000 bracket.  But that’s an irrelevant statistic.

Every taxpayer who engages in a business activity instead of or in addition to a job must submit small business tax forms and is thus counted as a “small businesses.”  This includes tens of millions of one or two person or part time businesses who will never create jobs.

The businesses that do create jobs are the “larger” small businesses that generate more revenue and more taxable profits. These are the businesses in the over-$200,000 tax bracket.  To determine if increasing the top tax bracket rates will affect a significant number of job creating small businesses the relevant questions are:

  • How many small businesses are there in the over $200,000 bracket?
  • What portion of all small business income is earned by those in over $200,000 bracket?

Fortunately, the IRS publishes data to answer these questions.  As the charts show more than two million taxpayers who earned over $200,000 were small business owners, and they earned 63% of all small business profits.

The Obama tax increase directly targets the very businesses that normally create most of the new jobs in America.  These businesses create jobs primarily by reinvesting after tax profits.  Increasing their tax burden will directly result in fewer jobs.

Geithner continued: It’s important to recognize why we’re doing this.  Deficits are 10% of GDP, higher than any time in the post war period. (65 years since the end of World War II.) We’re not doing it because we want to do it.  We’re doing it because if we don’t I have to go out and borrow a Trillion dollars over the next ten years to fiance those tax benefits…

This is typical political deception.  Geithner asserts that leaving the existing tax bracket rates in place will result in less tax revenue than if tax bracket rates are increased.  But anyone who reviews the history of tax rates and revenue knows it’s not at all certain that increasing tax rates on small businesses now will result in more tax revenue to the government.

Geithner says he’ll have to borrow an extra $1 trillion over ten years.  So even if he’s right, hundreds of thousands or perhaps even millions of people will remain unemployed so that tax revenue can increase by $100 billion per year, or about 3% of this year’s spending.

Geithner concluded: “…and if we were to cut spending by that magnitude we’d be putting a huge additional burden on the economy, probably greater economic impact than that modest change in revenues.”

So taking $100 billion from the private sector to fund government priorities is “modest.”  But allowing private sector businesses and individuals to spend, save or invest their own money as they see fit would be “a huge additional burden on the economy”?  This is nothing but Keynesian flimflam.

The table shows some relevant historical numbers, comparing 2011 with 2007:

Just four years ago, in 2007, there were 6.7 million more jobs while the government spent 29% less than it will spend this year.

Yet in the face of these numbers Geithner wants you to believe that a 3% spending cut will somehow be worse for job growth and prosperity than a major tax increase on employers!

7 Comments so far

  1. AzTex on June 25th, 2011

    Geithner’s quotes were out of context. He explained that a balanced approach requires increased revenue as well as spending cuts. The Republicans are stonewalling and are going to cause massive pain and misery with a debt ceiling crisis.

    Every credible economist agrees the main driver of deficits is the Bush tax cuts for the rich. Yet crazy Palin conservatives are willing to kill this whole economy just so the rich won’t have to pay a little more.

  2. Sarah Livingston on June 26th, 2011

    Geithner calls his tax increases on small business “balanced.”

    This is so simple even AzTex can understand. Obama came in and started charging TRILLIONS on the government credit card. Trillions!

    Now he wants to take the money from small business to pay the bill. Small business didn’t cause this crisis! Cut spending instead!

  3. Drew on June 26th, 2011

    “Every credible economist agrees the main driver of deficits is the Bush tax cuts for the rich.”

    Laughable. Credible?? Did you even look at the spending numbers?? Let me guess: you are on a cocaine binge. Jack Daniels? No, wait, you are a high school senior……

  4. Thousand Flowers Blooming on June 26th, 2011

    As usual, Drew spews out nonsense.

    Economists at the independent, nonpartisan CBO say revenues are a huge problem, that taxes are too low.

  5. SammyT on June 26th, 2011

    Sure there were more jobs when the mortgage bubble was inflating in 2007. But that was after 7 years of the Bush deregulation train was speeding down the track to catastrophe.

    Now things are going to get really bad. But Republicans refuse to sit down and negotiate in good faith. Debt ceiling must be raised to avoid catastrophe. Obama has already agreed to huge spending cuts. Now it’s time for Reps to step up and tell the rich they have to do their part! Why should all the burden be on the poor and middle class?

  6. Drew on June 27th, 2011

    “Sure there were more jobs when the mortgage bubble was inflating in 2007. But that was after 7 years of the Bush deregulation train was speeding down the track to catastrophe.”

    I was wondering, SammyT, if you were aware that:

    a) the housing bubble took off in Q4/Q1 of 1996/1997. Look at the Case-Schiller index.

    b) The single biggest act of deregulation creating the derivatives problem was the repeal of Glass-Steagal, signed by William Jefferson Clinton.

    No need to answer. You’ve publicly humiliated yourself by displaying your ignorance. But you’ll get along great with thousand flowers, who does the same routinely.

  7. Drew on June 27th, 2011

    And for those who are slaves to the CBO:

    “The data reveals that tax revenues in 2006 were actually $47 billion above the levels projected by the Congressional budget office before the 2003 tax cuts.”