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"The top 2 or 3 percent" of all small businesses would see their taxes go up under the Obama plan, Sen. Orrin Hatch, R-Utah, fumed this week. "That's 750,000 to 800,000 small businesses! That create most of the jobs in our society!"

The thing is, some of those businesses are not particularly small. They're actually S corporations. An S corporation is simply a corporation that chooses to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes.

In fact, they're quite large. Among the firms Republicans want to protect from new taxes are the management team at Wall Street buyout firm Kohlberg, Kravis and Roberts, which recently reported more than $54 billion in assets managed by 14 offices around the world; auditing firm Pricewaterhouse-Coopers, a household name with operations in more than 150 countries; and the Tribune Corp., which owns the Chicago Tribune, the Los Angeles Times and the Baltimore Sun.

KKR, PricewaterhouseCoopers and the Tribune Corp., it turns out, are organized as "pass-through" entities — companies that typically avoid corporate taxes by reporting profits on the individual tax returns of their owners, managers or shareholders.

Next year, the nonpartisan Joint Committee on Taxation predicts that taxpayers will report about $1 trillion in income from pass-through entities. Only about 3 percent of them will earn more than $250,000.

But not "all of the income is from entities that might be considered 'small,'" the JCT said in a report issued in July. "For example, in 2005, 12,862 S corporations and 6,658 partnerships had receipts of more than $50 million."

A separate analysis by the nonpartisan Tax Policy Center found that only about 10 percent of business income above the threshold was reported by sole proprietorships, with the rest coming from partnerships and S corporations, which can be extremely large.

Alan Viard, an economist in the Bush administration who is now at the American Enterprise Institute, agreed that many firms represented in the top tax brackets are hardly small.
Politically, however, it's a very different matter to raise taxes on a Wall Street hedge fund than it is to tax your neighborhood dry cleaner. Which is why Republicans continually define pass-through entities of all sizes as small businesses, a position Viard called a "fallacy."

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"The people that we're talking about, these so-called wealthy, most of them are small-business owners," Conservative pundit Stephen Hayes said.

It's certainly more politically palatable to urge lower taxes for mom-and-pop business owners than for Wall Street fat cats.

But if you are a small business owner yourself, you would have to be a whiz running a very profitable small business. You would have to report total income of more than $200,000 (or $250,000 for couples) after all your business expenses were deducted.

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If you raise their taxes they will hire fewer workers or downsize the workforce they have.

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The Democrats want to raise the taxes.

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The theory of tax cuts as economic stimulus has been put to the test - and failed - twice in the past six years alone. As the prolonged recession leads more people to once again consider these same old tried-and-failed policies, it is important to revisit recent history.

Less than half the personal tax cuts—especially the types of high-end tax cuts favored by conservatives—are likely to be spent in the first two years. Most of it will be used to pay down debt, build savings, or buy imports - all uses of money that do not boost the U.S. economy.

Consider the $100 billion in personal tax rebates that were issued as part of a broader economic stimulus effort in 2008. Only about one-third of the total amount was spent. A University of Michigan study in December 2008 concluded that these rebates provided “little ‘bang for the buck’ as economic stimulus.”

Similarly, a series of tax cuts in 2003 fell far short of targeted job growth. The Bush administration claimed the tax cuts would create 1.4 million jobs, in addition to some 4.1 million jobs expected to be generated over an 18-month period. But EPI tracked the initiative and found that not only did the additional 1.4 million jobs not appear, but the 4.1 million jobs that had been expected without the tax cuts never materialized either. By the end, the economy only saw an additional 2.4 million jobs added to the economy.

In other words, by the Bush administration’s own metrics, the tax cuts specifically designed to create jobs fell short by a staggering 3.1 million jobs.

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Despite considerable opposition from lawmakers, including some within his Republican party, President George W. Bush seems determined to push ahead with plans to introduce further cuts in taxes for the rich, continuing to assert that it would create more jobs for the poor.

But the findings of a new study suggest that Bush's claim on job creation is based more on political rhetoric than actual facts related to the nation's economic realities.

"It's a great sound bite that unfortunately does not hold true in the real world economy," say authors of the report, entitled, "Nothing to Be Thankful For: Tax Cuts and the Deteriorating U.S. Job Market."

Changes in tax policy suggest no evidence of their impact on job creation or destruction, according to the 22-page study released Tuesday by United for a Fair Economy (UFE), an independent group that tracks the growing economic divide between the nation's haves and have-nots.

Since 1950, significant tax increases and decreases have both been followed by job losses and job gains, say the researchers.

Based on statistical analysis of changes in tax polices and rates of job growth in the past 60 years, the report points out that tax reduction does, however, disproportionately lead to economic disparity between the rich and poor.

In June 2003, the Bush administration had claimed that the president's tax cut policy would create more than five million jobs by the end of 2004, but the study shows that only 2.6 million jobs were created--1.6 million less than what would have been expected without any special economic stimulus.

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A standard right wing talking point is that tax cuts for the rich and corporations create jobs.

This is, actually, true. They create jobs overseas.

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The tax cuts’ two bills, in 2001 and 2003 – changed laws so that personal income tax rates were reduced, exemptions for the Alternative Minimum Tax increased, and dividend and capital gains taxes also cut.

Yet in the debate, it seems of no moment to either side whether the tax cuts were effective in achieving their goal of spurring business investment and making the US economy more competitive.

Our own examination of US non-residential investment indicates that the reduction in capital gains tax rates failed to spur US business investment and failed to improve US economic competitiveness.

The 2000s – that is, the period immediately following the Bush tax cuts – were the weakest decade in US postwar history for real non-residential capital investment.

Not only were the 2000s by far the weakest period, but the tax cuts did not even curtail the secular slowdown in the growth of business structures.

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The logic of this is simple enough. If you have money to invest, you're going to invest it where it'll return the most. Right now and in the past couple decades that is either in leveraged financial games, or it is in economies which are growing fast and have low costs. The US does not have high growth compared to China or Brazil or many other developing countries. It has high costs compared to those countries as well.

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There are a couple of weird arguments that come up when you talk about tax cuts. One is that "tax cuts do not cause deficits. Spending does." This is pretty easy to test: If we cut taxes this year but leave spending unchanged, will anything happen to deficits next year? The answer, of course, is yes. They will go up. Fast.

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GOP's deficit-detonating tax-cut proposals make the Democrats with their spending look like pikers. The stimulus bill, remember, cost $787 billion. The tax-cut bill that Senate GOP Leader Mitch McConnell unveiled last week—a combination of making permanent the Bush tax cuts and throwing in a host of other tax credits—has a price tag of around $3.9 trillion. For those keeping score at home, the self-styled party of fiscal responsibility wants to blow a hole in the budget nearly five times larger than the alleged profligacy they have spent the last year or more condemning.

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The projected impact of the tax plan on the deficit would be greater than the combined total of last year’s economic stimulus package and the federal health care reform bill — programs that Paul and Republicans have attacked because of their cost.

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Eric Cantor finally admitted that extending the Bush tax cuts will increase the deficit.

He basically said, “Sure, less revenues theoretically increase the deficit, but we’re about getting people back to work, and low taxes for ‘job creators’ facilitates that.”

So I wouldn’t say he conceded the point so much as he raised a different one, a point which is equally wrong as the Laffer curve, incidentally. He claims that lower and lower taxes facilitates job creation. But the two Bush terms saw the lowest taxes for the wealthy, presumably the “job creators” Cantor is talking about. And those two terms saw the worst job creation in recorded American history going back to the Depression. This chart from the Wall Street Journal lays it out.

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Nobody since Hoover had worse annual job growth than George W. Bush, at a time when it was not at all expensive for “job creators” to make money.

I agree with Steve Benen that Cantor is conceding that the economy matters more than the deficit, a key bit of info. But if you think that paves the way for a legitimate discussion of these issues you haven’t seen one Washington Republican speak over the past decade.

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The thing that kills me: we've had these tax cuts for several years now, and what's happened to the economy? Oh yeah, right. It fucking crashed.

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