[asivisepo]

Washington Independent:
http://washingtonindependent.com/973...increases-hurt

This week, Sen. Joe Lieberman (I-Conn.), who caucuses with the Democrats, addressed a local chapter of the Chamber of Commerce in Middlesex, Conn. “I know that many people, including the president, have argued that the tax cuts should not be continued for people making more than $200,000 a year, but to me these are the people we need to be using their income to spend and invest to spur growth and job creation. The fact is that the top three percent of American income-earners account for 25 percent of the consumption in our economy.” He also argued that the tax increases would hurt small businesses — which, as the traditional engine of job growth in the United States, have created about two-thirds of the country’s new jobs over the past 15 years.

...

It’s not clear, however, that the rich spend the money they keep under lower income tax rates. There is economic evidence that the rich tend to spend tax rebates — checks that come in the mail, rather than incremental changes on a pay stub. Federal Reserve economists Julia Lynn Coronado, Joseph Lupton and Louise Sheiner, for instance, found that the rich spent more of their child-care tax credits in 2003 than poorer Americans did. But the same is generally not true for income taxes.

In this particular case, economists say that the wealthy probably would not spend the money, were the Bush cuts extended. “Policies that temporarily increased the after-tax income of people who are relatively well off would probably have little effect on their spending because they generally would be able finance their consumption out of their income or assets without such a change,” Douglas Elmendorf, the head of the Congressional Budget Office, said this year, finding tax cuts the least stimulative of 11 policy options. He argued that tax cuts would increase spending for lower-income workers, who have less in savings and tend to spend more of their paychecks anyway.

Economists from Moody’s Analytics, in an analysis of Federal Reserve data going back to 1989, came to the same conclusion. In a report released this week, Moody’s economists found that spending is far more impacted by the business cycle, such as the fluctuation of stock prices, than tax cuts.

...

Dean Baker of the Center for Economic and Policy Research, estimates that the tax hit would not be too high for most small businesses. For one, the marginal tax increase impacts earnings, not revenue. A business would need to be clearing more than $250,000 a year after salaries and other costs in order to see a tax hit. And then, it would likely be small. “For the $250,000 to $500,000 a year bracket,” Baker notes, “the estimated tax hit is $700. That isn’t enough to hire anyone.”

Other groups have also estimated that the impact would not be great. Citizens for Tax Justice, for instance, examined (PDF) “data on individuals who get more than half of their income from a business that they actively operate.” Only five percent would lose any portion of earnings — many of whom would be partners in law firms, hedge fund managers and accountants.