Rep. Pete Sessions, however, went further, and actually claimed hundreds of thousands of people would lose their jobs if Obama’s proposed tax increase went into effect. What’s the math behind his claim?
According to an aide, Sessions obtained his figure from a study prepared last year by two economists at Ernst & Young for the Independent Community Bankers of America, the National Federation of Independent Business, the S Corporation Association and the U.S. Chamber of Commerce — all opponents of the president’s agenda.
That might be the first clue that this is potentially not a neutral document. One of the authors is also a former official in George W. Bush’s Treasury Department.
The study is titled “Long-run macroeconomic impact of increasing tax rates on high-income taxpayers in 2013.”
In other words, this is not an immediate impact, but the “long run.” You have to dig into the endnotes on page 22 to find a definition of long run: “For models of this type, roughly two-third to three-quarters of the long-run effect is reached within a decade.”
Oh. So, even if one accepts the assumptions in this model — a big “if” — it still means that 700,000 job loss would not come in the first year, or by the end of Obama’s second term, or even a decade from now. Yet Sessions says the jobs would be taken “from people who need those jobs,” suggesting it would have an immediate effect.
Moreover, while 700,000 jobs sounds like a lot, it actually translates into one-half of 1 percent of total employment. Given this is a long-term prediction, there is certainly a lot of room for error. So much is dependent on the assumptions in the model.
There is also another revealing end note: “Using the additional revenue to reduce the deficit is not modeled.”
That means the analysts did not even study the effect of Obama’s stated purpose for raising taxes; the 700,000 figure assumes that the revenue raised from the tax increase would be used for increased government spending. Yet presumably any deal on fixing the fiscal cliff would result in a lower federal deficit, since all sides agree they have that goal.
Indeed, there are also long-term effects from permanently extending the tax cuts without cutting the deficit. This is what the Congressional Budget Office said in 2010, after studying the impact of full, partial or temporary extensions of tax cut: “The permanent extensions of the tax cuts would have much larger negative effects in the long term than the temporary extensions because the amount of additional government debt would be so much larger.”
In other words, focusing just one variable — an increase in taxes — is a bit simplistic. By itself, higher taxes likely leads to a reduction in employment. But the use of that additional revenue over the long term is also important — such as whether it is used to reduce budget deficits or boost government spending…
Choosen excerpts by JMM from
Substantial changes to tax and spending policies are scheduled to take effect in January 2013, significantly reducing the federal budget deficit. According to CBO’s projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of … Continue reading »
U.S. Taxes Rates | Wealthiest pay 40% less than 50 years ago while middle class pay roughly the same
Michael Greenstone and Adam Looney of The Hamilton Project – Brookings Institute examine the progressivity of the U.S. tax code and highlight two facts: the current U.S. tax system is less progressive than the tax systems of other industrialized countries, and considerably less progressive today than it was just a few decades ago. The figure below shows how much …Continue reading »
The wealth gap between the richest Americans and the typical family more than doubled over the past 50 years. In 1962, the top 1% had 125 times the net worth of the median household. That shot up to 288 times by 2010, according to a new report by the left-leaning Economic Policy Institute. That trend … Continue reading »
The economic framework that has recently defined our politics should be replaced by a new narrative writes William A. Galston, one that runs as follows: In recent decades, changes in the structure of our economy and politics have created a dramatic increase in income inequality; while changes in our tax code did not contribute materially … Continue reading »
Tuesday is the last day to file state and federal income tax returns. The deadline comes near the release of a report by the Washington-based Center on Budget and Policy Priorities, which says Georgia levies some of the nation’s highest income taxes on the working poor. The report says Georgia is one of only 15 … Continue reading »
Social scientists and philosophers have been concerned with issues surrounding the distribution of income or income inequality for over 200 years—the economist and philosopher Adam Smith discussed these issues as early as 1776. Academic writers have been writing on income inequality measurement issues for at least a century. Policy makers have also long been interested … Continue reading »
93 percent of income growth went to the wealthiest 1 percent of American households, while everyone else divvied up the 7 percent that was left over according to Emmanuel Saez. Main Findings Source: http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf “Figure 1 presents the income share of the top decile from 1917 to 2010 in the United States. In 2010, the top …Continue reading »