Politics & Policies

US | Wealthy | Would a tax hike cost 700,000 jobs ?

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?

The Facts

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

via Would a tax hike on the wealthy kill 700,000 jobs? – The Washington Post.

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2 thoughts on “US | Wealthy | Would a tax hike cost 700,000 jobs ?

  1. You are mistaken in your analysis of the study you reference. “For models of this type, roughly two-third to three-quarters of the long-run effect is reached within a decade.” Key words: “within a decade,” which means that could be 2013, 2014, through 2022. So why would you say the job loss wouldn’t occur in the first year or in Obama’s term? You are misleading people. You may not think 700,000 jobs are important to fight for, but those 700,000 households you don’t think are important are VERY important to millions of people in those 700,000 households. Barack Obama spent a LOT of money fighting for approximately 1.5 million jobs in the auto industry, roughly twice the number of job losses the industry would have faced prior to his government bailout. WHICH WE TAX PAYERS ARE PAYING FOR. That’s roughly 1% of jobs, vs. .5% jobs. AND, the revenue gained from taxing the upper income earners will only pay to run the government for a week each year! So you think one-week’s worth of income is worth 700,000 job losses?! You’re an idiot! You do not have sound judgment and should not be writing and misleading the American people! And how much revenue will be lost due to NOT being able to tax 700,000 paychecks? At $50,000/yr income for 700,000 jobs at 20% federal tax rate that’s 7 Billion per year in lost revenues. PLUS, you have 700,000 fewer people buying things at stores, so consumer spending will go down. PLUS, you have 700,000 more people on federally funded UNEMPLOYMENT and you have 700,000 more people who will go on the healthcare government dole from the Affordable Care Act, both of which TAXPAYERS will have to pay for! Again, you are an idiot and should censor yourself from further writing until you gain enough common sense and fiscal responsibility to TELL THE TRUTH and give an ACCURATE ASSESSMENT!

    Posted by Heather Keaton (@FreeAmerica2013) | November 28, 2012, 12:47 pm

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