The Bush tax cuts are set to expire this year. Obama and his allies want to keep most of the tax cuts in place, so that middle-class Americans don't see their taxes go up. But they want to let the cuts on the highest brackets expire. Republicans, by contrast, want to extend all of the tax cuts. And since polls show that most Americans are happy to raise taxes on the rich, Republicans are suggesting that letting the cuts expire will hurt small business--which, they say, is bad for the economy and just plain unfair. Here's McConnell on Sunday:
What the administration is proposing, and the majorities in the House and Senate, is to raise taxes on the top 2 brackets, which will affect 50 percent of small business income and in--and impact 25 percent of the work force. For example, if you look at last--the last quarter of last year, 84 percent of the jobs that were lost were lost in small business. I think it is outrageous to suggest that raising taxes in the middle of a recession is a good idea.
The economics here are highly suspect. When the Congressional Budget Office examined possibilities for a new stimulus, it ranked extension of the Bush tax cuts eleventh--out of eleven. As the Center for Budget and Policy Priorities has noted, if there's going to be a tax cut, then it'd be far better to have one that actually targeted job creation--and was, by the way, temporary. (Funny, isn't it, how Republicans never argue for temporary, rather than permanent, extension of the Bush tax cuts?)
The figures about who would face higher taxes are just as misleading. As Dylan Matthews explained a month ago, in the Washington Post, that "50 percent of small business income" is concentrated in a very small group of people who make a very large amount of money. We're not talking mom-and-pop grocery stores. We're talking investors, surgeons, and--yes--lawyers. Apparently, litigators aren't so awful when they make a lot of money.
Update: Howard Gleckman, of the Urban-Brookings Tax Policy Center, has argued that extending upper-income tax cuts could actually hurt small business.