Taughannock Falls

Taughannock Falls
from: althouse.blogspot.com

Thursday, July 29, 2010

Trickle down tax policy

Karoli has a nice post on Crooks and Liars today that rightly mocks Joe Lieberman and Kent Conrad for their opposition to allowing the Bush tax cuts for people making over $250,000 a year to expire in 2011.

One particular argument for the high income tax break apologists has always been that raising taxes for these people on top will hurt "small business" in the U.S. This argument of course presupposes that capitalists will immediately reduce their economically beneficial activities if they are asked to pay slightly higher taxes. That must be why you can't find any capitalists in London, Stuttgart or any of the countless other places in the developed world where taxes are far higher than in the United States. But since most Americans are quite unaware of how much lower top tax rates are here compared to much of the world, we should consider a purely American example. A master plumber has a choice between remaining a one person operation clearing $65,000 a year in profits, or hiring on some other plumbers and apprentices and taking in profits of $350,000 a year. Will this plumber choose not to expand because of a minor increase in taxes? Not for any reasons of rational self-interest!

Karoli's post also makes another point. It refers to a study of tax data that shows very clearly that most small business income in this country is not taxed at the highest rates. This is true for two reasons: most small business owners make less than $250,000, and those wealthy folks who do report small business income very often derive only a fraction of their income from small business.

Progressives who want to argue in favor of letting the Bush tax cuts for wealthy folks expire should actually look to small business as a natural ally. A seamstress or landscaper with a fairly low income obviously has an interest in seeing the very wealthy pay more of their fair share. But I would also look to wealthy small business owners for support. If paying thousands more in taxes will help to make it easier to provide healthcare to employees, why not do it? The Republican assumption that most people don't like paying taxes is correct. But the Republican assumption that a minor increase in taxes, for those making over $250,000, can be successfully misrepresented as an attack on "small business," must be fought against with great vigor.

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