Research Briefing

Dems Don’t Agree With Obama’s Plan To Raise Taxes On Small Businesses, Hurting The Economy

President Obama: Bush Tax Cuts Go To People “Who Don’t Need Them.” “They’ve got no problem spending money on tax breaks for folks at the top who don’t need them and didn’t even ask for them...” (President Obama, “Weekly Address,” 7/17/10)

SEVERAL DEMS DISAGREE, SAY EXTEND THE BUSH TAX CUTS FOR EVERYONE

Senator Evan Bayh (D-IN) Thinks Expiration Of Bush Tax Cuts Will Hurt An Economic Recovery. “In a rare moment of bipartisanship, Sen. Evan Bayh (D-Ind.) on Monday said he agrees with House Minority Whip Eric Cantor's (R-Va.) statements that tax increases would hurt the economic recovery. ‘We don’t need to raise taxes now,’ Bayh told CNBC’s Squawk Box. ‘Eric is exactly right.’ Cantor said President Barack Obama should abandon his campaign pledge to only extend the Bush tax cuts for the middle class, and instead keep all of them beyond their Jan. 1, 2011, expiration date.”  (Jay Heflin, “Bayh: Tax Increases Will Hurt Recovery,” The Hill’s “On The Money” Blog, 7/12/10)

• Senator Evan Bayh Says Raising Taxes On Those Making More Than $250,000 Will “Dampen Demand” And “Increase Burdens On Businesses.” “‘Raising income taxes even on people making $250,000 runs the risk of dampening consumer demand at a time when that is critical to recovery,’ Sen. Evan Bayh (D., Ind.) said in an interview. ‘The last thing we want to do is dampen demand or increase burdens on business.’” (John McKinnon, “As Tax Cuts’ Expiration Date Nears, Little Consensus,” The Wall Street Journal, 7/15/10)

Senator Kent Conrad (D- ND) Says That All The Bush Tax Cuts Should Be Extended. “The Bush tax cuts shouldn’t be allowed to expire at the end of the year, Sen. Kent Conrad (D-N.D.) said Wednesday. Conrad, chairman of the Senate Budget Committee, said taxes — individual income taxes and capital gains rates — on the nation’s wealthiest Americans shouldn’t be allowed to rise until the economy is in better shape, according to news reports. Conrad said that neither spending should be cut nor taxes raised while the economy grapples for a solid grip on recovery.” (Vicki Needham, “Conrad Opposes The Expiration Of The Bush Tax Cuts,” The Hill, 7/21/10)

“Sen. Ben Nelson (D., Neb.) Said Through A Spokesman That He Also Supported Extending All The Expiring Tax Cuts For Now, Adding That He Wanted To Offset The Impact On Federal Deficits As Much As Possible.”  (Martin Vaughan and John D. McKinnon, “Bush Tax Cuts Roil Democrats,” The Wall Street Journal, 7/22/10)

“In Addition To Messrs. Conrad, Nelson And Bayh, At Least Half A Dozen House Democrats Also Have Come Out Publicly In Favor Of Postponing Tax Increases For Higher Earners.” (Martin Vaughan and John D. McKinnon, “Bush Tax Cuts Roil Democrats,” The Wall Street Journal, 7/22/10)

“‘We're Not Creating Jobs, And Raising Taxes Now Would Not Be A Great Idea,’ Rep. Michael Mcmahon, A New York Democrat, Said This Week.” (Martin Vaughan and John D. McKinnon, “Bush Tax Cuts Roil Democrats,” The Wall Street Journal, 7/22/10)

Rep. Gerry Connolly (D-VA) Says The Economy Is Still Too “Fragile” And That All The Bush Tax Cuts Should Be Extended. “‘I think the recovery is sufficiently fragile that we ought to leave tax rates where they are,’ said Rep. Gerry Connolly, a freshman Democrat from Virginia. Connolly said Democrats should not allow the 2001 Bush tax cuts to expire for anybody.  ‘People in the upper tax brackets have a huge impact, a disproportionate impact on consumer spending,’ he said.”  (Alexander Bolton, “Democrats May Stop Bush-Era Tax Cuts For Wealthy From Expiring,” The Hill, 7/22/10)

EXPIRATION OF THE BUSH TAX CUTS WILL HURT EVERYONE,

ESPECIALLY SMALL BUSINESSES

Fed Chairman Ben Bernanke Says Extending The Bush Tax Cuts Would Help The Economy. “Federal Reserve Chairman Ben S. Bernanke said extending the tax cuts passed during former President George W. Bush’s administration would help strengthen a U.S. economy still in need of stimulus. ‘In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy,’ Bernanke said today in testimony before the House Financial Services Committee. ‘There are many ways to do that. This is one way.’” (Scott Lanman, “Bernanke Says Extending Bush Tax Cuts Would Maintain Stimulus To Economy,” Bloomberg, 7/22/10)

The Expiration Of Bush Tax Cuts Will Hit Everyone, Not Just The Rich. “The Bush tax cuts don't just offer tax relief to the wealthiest Americans. They offer it to just about anyone who pays federal income taxes. Their scheduled demise next year will raise the tax bill of nearly every taxpayer, unless Congress makes changes and the president jumps on board.” (Bob Bischoff, "How The Expiring Bush Tax Cuts Affect You," SmartMoney.com, 7/7/10)

• All Individual Income Tax Rates Will Increase When The Bush Tax Cuts Expire. “You may have been led to believe that only individuals in the top two brackets will face higher federal income taxes when the Bush cuts go bye-bye. Not true! Unless Congress takes action and President Obama goes along, rates will go up for everyone -- not just a sliver of the wealthiest Americans. The current six rate brackets of 10%, 15%, 25%, 28%, 33% and 35% will be replaced by five new brackets with the higher rates of 15%, 28%, 31%, 36% and 39.6%.” (Bob Bischoff, "How The Expiring Bush Tax Cuts Affect You," SmartMoney.com, 7/7/10)

The Joint Committee On Taxation Says 50 Percent Of Businesses Will Be Affected By Increases To The Top Income Tax Rates. “The staff of the Joint Committee on Taxation estimates that in 2011 just under 750,000 taxpayers with net positive business income (three percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the President’s proposal, and that 50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent.”  (The Staff Of The Joint Committee On Taxation, “Present Law And The President’s Fiscal Year 2011 Budget Proposals Related To Selected Individual Income Tax Provisions Scheduled To Expire Under The Sunset Provisions Of The Economic Growth And Tax Relief Reconciliation Act Of 2001,” Joint Committee On Taxation, 7/12/10)

Obama's Income Tax Rate Increase Will Hit Small Businesses That Create 60 To 80 Percent Of New Jobs, “Discouraging” Their “Growth Or Expansion.” “They want to restore the higher, Clinton-era tax rates on the top two individual income brackets, increasing the 33 and 35 percent rates to 36 and 39.6 percent. But these higher rates won't just hit high wages; they'll hit business income ... Depending on how we define 'small business,' these higher tax rates would raise taxes on 45 to 55 percent of small business income ... So why should we pay attention to the way our tax code treats small businesses? They are an important source of innovation and risk-taking, creating between 60 and 80 percent of net new jobs, employing over half the labor force ... Higher income tax rates reduce the investment spending of entrepreneurs and the likelihood that they invest at all, discouraging the growth or expansion of small businesses.” (Robert Carroll, "Small Business And The Personal Income Tax Rates," Tax Foundation, 10/28/08)

• Obama's Higher Income Tax Rates Will Stifle Entrepreneurship And Hurt “An Important Source Of Innovation.” “The impact of the higher tax rates on the entrepreneurial sector is also particularly troubling. An often underappreciated feature of our tax system is that roughly one-third of all business taxes are paid by owners of flow-through businesses ... when they file their individual tax returns. These businesses are an important source of innovation and risk taking.” (Robert Carroll, "The Economic Cost Of High Tax Rates," Tax Foundation, 7/29/09)