Bush tax cuts and jobs: truth to the lie

From Brad DeLong:

Is George W. Bush responsible for the fact that the employment situation is lousy? No. The economy is an ocean liner, but the president is not its captain. Presidents influence the economy. They don't control it.

But are he and his administration responsible for the fact that the employment situation is as lousy as it is? Yes. He sold his tax cuts as employment-generating stimulus programs, while in fact they got only about half as much employment bang for the deficit buck as a reasonable program would have.

Thus when the Bush administration says that without the Bush tax cuts employment would be 1.4 million lower, they are probably right. But what they are not saying is that employment would be another 1.4 million higher had Bush administration fiscal policy been designed with its primary focus on boosting employment rather than providing tax cuts for the $200,000+ a year crowd.

First, there is a reason why small business is a legitimate focus for stimulus, which is what President Bush has suggested his tax cuts were aimed at.  As stats (here or here) from the Small Business Administration (or SBA) reveal, in 2000, when Bush was running for president, 99.7 percent of US businesses were small (with fewer than 500 employees). In 2000, businesses with fewer than 500 workers employed 50.1 percent of the nation's non-farm sector employees.  Between 1999 and 2000, small businesses represented 75 percent of net non-farm employment change in the United States.  Furthermore, in 2002-2003, small businesses continued to be a source of economic strength. Research from the Office of Advocacy shows that half of private non-farm output and employment stem from small firms with 500 or fewer employees.

So the problem isn't a focus on small businesses.  The problem is that the tax cuts DeLong refers to above overwhelmingly did not go to small business owners, which is what DeLong really meant to say.  As David Wessel of the Wall Street Journal (I found this article quoted here ) pointed out back in March:

The latest Internal Revenue Service data available, from 2001 tax returns, show that less than 4% of taxpayers reporting any small-business income had total income above $200,000. The Tax Policy Center estimates that last year 6.5% of taxpayers with small-business income on their tax returns had total income above $200,000.

So Brad DeLong is right that the supposed Bush "stimulus" plan didn't really provide as much bang for the deficit buck as a more reasonable program (one more accurately targeting small businesses) would have had.  (It's worth noting here that Kerry does have a plan, and under it small businesses that create jobs would actually pay lower taxes than under George Bush.)  But lying about giving them a tax cut isn't the only thing Bush has done to small business.  He has otherwise made it harder for them to grow, which is the opposite what we he says he is doing.  As revealed here, he has cut back the SBA and loan programs:

But what has stayed under the radar, for the most part, is the fact that the Bush Administration has been no friend of America's small businesses.

One of President Bush's early actions was to demote from his cabinet the head of the Small Business Administration (SBA), a position that was elevated to cabinet-level status under President Clinton. Meanwhile, much of the Bush cabinet has been made up of leaders from many of America's largest corporations.

Given how Bush has treated the SBA and its loan programs, it isn't surprising that he demoted its chief. In May of 2001, the Washington Post reported that the administration was seeking to slash the SBA budget by 40 percent. More significantly, it planned to eliminate a $144.5 million appropriation for a small business loan guaranty program and impose higher fees for certain borrowers. It took a bi-partisan effort in Congress to save funding for this program, which is the single-largest source of small business capital in the nation.

This pattern would be repeated in subsequent budgets, and this year is no different. The President has proposed slashing the overall SBA budget next year by 10 percent, including eliminating the Microloan program. This loan program is geared toward very small businesses and the self-employed â€" frequently women and minorities. Overall, Bush has cut the agency's budget by 25 percent since taking office.
So Bush says one thing and does another. What's new?

So Bush is largely responsible for the lousy jobs situation.  He promised us roses when he cut taxes but has produced mostly thorns.  Two months did have a few roses, the rest are all thorns:

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Despite his sorry treatment of small business, Bush has gotten some praise from supposed small business supporters.  One example can be found here.  Here are the Bush accomplishments it lists, (and it doesn't take a genius to see, once you know the truth about the tax cut part, that these don't amount to very much):

·Making tax cuts permanent
·Eliminating the death tax for good
·Reforming the civil justice system
·Reducing paperwork burdens on business owners
·Restoring integrity to America's boardrooms
·Protecting fair trade?

Many small business families would be affected by cutting back "death" (estate) taxes, it is true.  But, for one thing, that tax has very limited meaning as a stimulus for new growth and far more meaning for those who want their families to keep the fortunes they have amassed.  And as noted above in the discussion about the incomes of small businessmen, by far the majority of small business owners are not amassing large pools of wealth.

Recently, in a speech  given to a national conference of small businesses, Bush added this:  

We also created new incentives for the small businesses by quadrupling the annual expense deduction for equipment, up to $100,000. And that's important. (Applause.) See, that's important. It's an important part of stimulating the economy. We say, look, we're going to encourage you to invest. And our fellow citizens must understand that when small businesses invest, it means really what you're doing is you're purchasing something that somebody has to manufacture for you. And when they manufacture it for you, somebody is more likely to find work. It has a ripple effect throughout our economy.

But Bush limited loan programs, as noted above.  So what good is a deduction if I can't borrow the money to invest? Hmmm....

The next time you hear Bush say something like this be sure to laugh out loud and explain in detail to your friends, family and neighbors what a bunch of carefully contrived malarkey it really is:

The tax plan, that stimulation -- the economic stimulation plan we passed was based upon a certain principle. It was based upon my optimism about people making the right decisions throughout our economy. See, I'm optimistic about our future because I've got great faith in the small business entrepreneurs of America and the workers of America. And the economic plan we put forth to Congress, which they passed, is based upon that great trust and optimism and knowledge about how the small business sector works and affects the future of the country.  

•  ratings mojo

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  by mikepridmore on Mon Jul 05, 2004 at 12:35:32 PM PDT

•  Uh, not so fast

   less than 4% of taxpayers reporting any small-business income had total income above $200,000........Many small business families would be affected by cutting back "death" (estate) taxes, it is true.  But, for one thing, that tax has very limited meaning as a stimulus for new growth and far more meaning for those who want their families to keep the fortunes they have amassed.  And as noted above in the discussion about the incomes of small businessmen, by far the majority of small business owners are not amassing large pools of wealth.
  

  No, few report anything over $200K.  Few report anythjing.  Practically the whole point of being a small business is to write off EVERYTHING so there is no tax load.  Wealth creation for small business ownwers is in the building up of the business asset itself precisely through tax avoidance.  The rest of us are, through the tax system, paying for their SUVs, their meals, their cleaning, their furniture, their art collections (decor), their "conventions" in Hawaii, their god knows what all.

  by NorCalJim on Mon Jul 05, 2004 at 02:22:31 PM PDT

  •  Even if you are right

    that they make more than the tax returns show, Bush's supposed tax cuts targeted at small business still would be close to meaningless because they are already tax free.  Estate tax changes aren't a jobs stimulus either.

    by mikepridmore on Mon Jul 05, 2004 at 02:30:14 PM PDT