The GOP's Favorite Lies About The Jobs Market

September 19, 2011 3:59 pm ET

What should government do to spur job creation? That's the central question for American political leaders today, and as Republicans reject Democratic answers, it's important to hold their arguments accountable to economic facts. When it comes to the two central planks of the GOP's economic platform — that "uncertainty" about taxes and regulations is the cause of slow hiring, and that increasing high-end tax rates will hurt job-creating small businesses — the facts and the data disagree. According to businesses and economists alike, it is weak demand and not "uncertainty" that's preventing hiring. And when the GOP claims small businesses are in the crosshairs of top-end tax hikes, they are counting "pass-through" shell corporations used by authors, athletes, and industrial giants alike. In fact, just two percent of those who report business income on their individual tax returns are counted in the top federal income tax brackets.

GOP CLAIM: "Uncertainty" About Taxes And Regulations Is Preventing Businesses From Hiring

Business Owners: Lack Of Customers, Demand Is The Problem

McClatchy: Small Business Owners Not Worried About Regulations. As reported by McClatchy:

Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation.

"Government regulations are not 'choking' our business, the hospitality business," Bernard Wolfson, the president of Hospitality Operations in Miami, told The Miami Herald. "In order to do business in today's environment, government regulations are necessary and we must deal with them. The health and safety of our guests depend on regulations. It is the government regulations that help keep things in order." [...]

McClatchy reached out to owners of small businesses, many of them mom-and-pop operations, to find out whether they indeed were being choked by regulation, whether uncertainty over taxes affected their hiring plans and whether the health care overhaul was helping or hurting their business.

Their response was surprising.

None of the business owners complained about regulation in their particular industries, and most seemed to welcome it. Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath. [McClatchy, 9/1/11]

Wall Street Journal: Despite Massive Cash Reserves, Business Not Hiring Because Debt Reduction Stifling Demand. As reported by the Wall Street Journal: "Corporations have a higher share of cash on their balance sheets than at any time in nearly half a century, as businesses build up buffers rather than invest in new plants or hiring. [...] The reduction of debt could place the economy onto firmer footing in the long run. In the short term, however, the effect of consumers paying off debts and companies hoarding cash is less spending, investing and hiring. Economists call this problem the 'paradox of thrift,' when individuals and businesses need to save more to prepare for a downturn, but everyone doing so at the same time makes a downturn more likely. 'For one household or business to save money is a good thing,' said Dana Saporta, an economist with Credit Suisse in New York. 'For everyone to be doing this at the same time could serve to slow economic growth.'" [Wall Street Journal, 9/17/11, emphasis added]

Wall Street Journal: "The Main Reason" For Hiring Reluctance Is "Scant Demand, Rather Than Uncertainty Over Government Policies." According to the Wall Street Journal:

The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey.

"There is no demand," said Paul Ashworth of Capital Economics. "Businesses aren't confident enough, and the longer this goes on the harder it is to convince them that they should be."

In the survey, conducted July 8-13 and released Monday, 53 economists-not all of whom answer every question-were asked the main reason employers aren't hiring more readily. Of the 51 who responded to the question, 31 cited lack of demand (65%) and 14 (27%) cited uncertainty about government policy. The others said hiring overseas was more appealing. [Wall Street Journal7/18/11, emphasis added]

Wall Street Journal: Despite Improving Profits, It Will Take "A Burst In Demand" To "Propel Hiring." As reported by the Wall Street Journal: "Corporate profits rose an estimated 3% in the second quarter from the first, better than the 1% improvement in the first three months of the year, the Commerce Department said Friday. Profits were up more than 8% from last year's second quarter. The domestic nonfinancial sector drove most of the growth, as financial profits declined. [...]Forecasting firm Macroeconomic Advisers, which sees growth at a 2.3% pace in the second half of this year and 2.8% in 2012, expects firms to keep banking strong profits. But even if businesses remain strong enough to make it through a slowdown, they may have to wait longer for a burst in demand strong enough to propel hiring." [Wall Street Journal, 8/29/11, emphasis added]

  • "The Biggest Problem" For Companies "Is That Their Order Books Are Thin." As reported by the Wall Street Journal: "'The biggest problem is that their order books are thin,' said Macroeconomic Advisers chairman Joel Prakken. 'They need fat order books to add people. They need fat order books to buy machines.'" [Wall Street Journal, 8/29/11]

Washington Post: Executives Can't Draw Specific Link Between Government Actions And Hiring Decisions. According to the Washington Post: "Fundamentally, executives objected to Obama's policies on the grounds they would make the United States a less competitive place to operate in the long run. But when [manufacturing CEO Jason] Speer and other executives were pressed on the role that tax and regulatory policies play in hiring, they drew only vague connections. Speer said his decision whether to hire is driven primarily by demand for his products. Orders are coming in strong enough that he is running about 20 hours a week of overtime. So he is weighing whether to hire two or three additional manufacturing workers. None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring." [Washington Post8/21/10, emphasis added]

Study By "The Most Right Wing Of The Major Business Groups" Shows Businesses Much More Afraid Of Weak Demand Than Taxes And Regulations. As Ezra Klein of the Washington Post reported:

The National Federation of Independent Businesses -- a small-business trade association that is considered the most right wing of the major business groups -- continually polls its members and releases the results. Here's what they say is their single most important problem:

As you can see, sales - that is to say, demand for their products - dominate the chart, while fear of taxes is lower than in the '90s. The concern over sales is understandable. Not only is the economy bad. But as the next chart shows, it keeps underperforming what the businesses assume will happen.

So, if anything, businesses have been too optimistic over the past few years. [Washington Post7/22/10]

Economists Say The American Jobs Act Will Bolster Demand And Create Millions Of Jobs

Macroeconomic Advisers LLC: American Jobs Act Will Boost Employment By 2.1 Million Over 2012-13. From Macroeconomic Advisers LLC's Macroadvisers blog:

We estimate that the American Jobs Act (AJA), if enacted, would give a significant boost to GDP and employment over the near-term.
  • The various tax cuts aimed at raising workers' after-tax income and encouraging hiring and investing, combined with the spending increases aimed at maintaining state & local employment and funding infrastructure modernization, would:
    • Boost the level of GDP by 1.3% by the end of 2012, and by 0.2% by the end of 2013.
    • Raise nonfarm establishment employment by 1.3 million by the end of 2012 and 0.8 million by the end of 2013, relative to the baseline. [Macroadvisers, 9/8/11, emphasis original]
  • Macroeconomic Advisers LLC: Boosting Demand Boosts Hiring. From Macroeconomic Advisers LLC's Macroadvisers blog: The program works directly to raise employment through tax incentives and support to state & local governments for increasing hiring; it works indirectly through the positive boost to aggregate demand (and hence hiring) stimulated by the direct spending and the increase in household income resulting from lower employee payroll taxes and increased employment. [Macroadvisers, 9/8/11, emphasis added]

Economic Policy Institute: American Jobs Act Will Create 2.3 Million New Jobs, Save A Further 1.6 Million. From EPI's Working Economics blog: "Overall the package would increase employment by about 4.3 million jobs over the next couple of years. The new initiatives would boost employment by about 2.6 million jobs, while the continuation of the two temporary provisions (EUI and the payroll tax holiday) would prevent a backslide of over 1.6 million jobs." [EPI.org, 9/8/11]

Moody's: American Jobs Act Will Create 1.9 Million Jobs. As reported by UPI: "President Barack Obama's $447 billion job-creation plan would likely add 1.9 million payroll jobs and grow the U.S. economy 2 percent, a leading economist said. The plan, which Obama outlined before a joint session of Congress Thursday, would likely cut the unemployment rate by a percentage point, Moody's Analytics Chief Economist Mark Zandi said as Obama prepared to tout the plan at Virginia's University of Richmond." [UPI, 9/9/11]

CBO Director: "Most Effective" Policy Would Be Increased Spending In Short Term, Deficit Reduction Over Middle Term. As reported by Talking Points Memo: "'If policymakers want to achieve both a short-term economic boost and long-term fiscal sustainability the combination of policies that would be most effective according to our analysis would be changes in taxes and spending that would widen the deficit today, but narrow it in the coming decade,' Elmendorf told the panel's 12 Democrats and Republicans. 'The combination of fiscal policies that would be most effective would be policies that cut taxes or increase spending in the near-term, but over the medium and longer-term move in the opposite direction.' This is a generalized version of precisely what President Obama is proposing -- a $447 billion jobs bill that will increase spending on hiring programs, and reduce payroll taxes; accompanied by deficit reduction measures that take effect in 2013, to more than cover the cost of the jobs bill." [Talking Points Memo, 9/13/11, emphasis added]

GOP CLAIM: Any Top-End Tax Increase Is A Job-Killing Tax Hike On Small Businesses

Actual Data: About $9 Out Of Every $10 Raised By Increasing Top Rates Comes From Something Other Than A Small Business Job Creator

Just 12 Percent Of Money Raised By Increasing Top Rates Comes From "Small Businesses With Actual Workers." As reported by Businessweek: "The nonpartisan Congressional Research Service, which analyzes issues for lawmakers, largely agreed with Obama in a Sept. 3 report that considered only taxpayers with employees. Its conclusion: Small businesses with actual workers would pay only about 12 percent of the higher taxes.' Across-the-board tax cuts for high-income individuals are not efficiently targeted to small businesses,' wrote author Jane G. Gravelle." [Businessweek, 9/23/10; emphasis added]

FactCheck.org: "Only 2 Percent" Of Those Reporting Business Income Face Higher Taxes Under Democratic Proposal. According to FactCheck.org: "[O]nly 27 percent of all upper-income tax filers report business income that accounts for more than half of their wages. It's likely that a small-business owner would make most of his or her income from the small business... In the end, it's unclear exactly what percentage of these top earners are truly small businesses. What is clear, however, is that we're not talking about all that many small businesses in the first place. The vast majority of individuals who report business income or losses are not making upwards of $200,000 a year. In fact, only 2 percent of all those reporting business income in 2009 will earn enough to fall in the top two brackets. As we explained back when Obama's tax plan was attacked on the campaign trail, the overwhelming majority of these mom-and-pop shops we hear about would not see their taxes go up under Obama's proposal." [FactCheck.org, 3/6/09, emphasis added]

Republican Definition Of Small Businesses Includes Incredibly Wealthy Individuals And Huge Corporations

Bush Economist: Businesses Republicans Define As "Small" Are Actually "Very Large." According to the Washington Post: "Alan Viard, an economist in the Bush White House who is now at the American Enterprise Institute, agreed that many firms represented in the top tax brackets are hardly small. Economically, that doesn't matter, he said: Obama would still be raising taxes on a significant source of jobs and economic activity. Politically, however, it's a very different matter to raise taxes on a Wall Street hedge fund than it is to tax your neighborhood dry cleaner. Which is why Republicans continually define pass-through entities of all sizes as small businesses, a position Viard called a 'fallacy.' 'How can it be that 3 percent of owners are accounting for 50 percent of small business income? Those firms they're owning can't be all that small,' Viard said. 'And that's true. They're very large.'" [Washington Post9/17/10, emphasis added]

Bloomberg: GOP Definition Of Small Business Includes "George Soros, Most Movie Stars And Obama Himself." According to Bloomberg:

Senate Republican leader Mitch McConnell says President Barack Obama wants to subject half of all small-business income to a tax increase, a move that he says would strike a blow at the U.S. job-creation engine.

McConnell's numbers only add up if you consider people like billionaire investor George Soros, most movie stars and Obama himself small-business owners, tax experts say.

That's because the lawmaker is basing his figure on a broad definition of the term that experts say includes authors, actors and athletes who employ few if any workers. It also encompasses businesses that many people wouldn't consider small, such as Soros's hedge-fund firm and major law partnerships. [Bloomberg, 9/20/10]

Republicans Define All "Pass-Through" Entities As Small Businesses. As reported by the Washington Post, "Republicans continually define pass-through entities of all sizes as small businesses..." [Washington Post9/17/10, emphasis added]

"Pass-Through" Entities Republicans Count As "Small Businesses" Include A Wall Street Firm Worth $54 Billion. As reported by the Washington Post:

The thing is, some of those businesses are not particularly small. In fact, they're quite large.

Among the firms Republicans want to protect from new taxes, according to research by House Democrats: The management team at Wall Street buyout firm Kohlberg, Kravis and Roberts (KKR), which recently reported more than $54 billion in assets managed by 14 offices around the world. Auditing firm PricewaterhouseCoopers, a household name with operations in more than 150 countries. And the Tribune Corp., which owns the Chicago Tribune, the Los Angeles Times and the Baltimore Sun.

KKR, PricewaterhouseCoopers and the Tribune, it turns out, are organized as "pass-through" entities - companies that typically avoid corporate taxes by reporting profits on the individual tax returns of their owners, managers or shareholders. [Washington Post9/17/10, emphasis added]

Republican Definition Includes Athletes, Authors, And Other Non-Employer Tax Filers. According to Businessweek:

McConnell's 50-percent-of-income figure is based on a July 12 finding by the Joint Committee on Taxation, a House-Senate panel that analyzes tax issues, that half of about $1 trillion of business income in 2011 will be reported on some 750,000 personal tax returns filed by people who pay the top marginal rates. He calls those small businesses. Yet the report says the data 'do not imply that all of the income is from entities that might be considered 'small.'' Almost 20,000 of those businesses, for example, had receipts of more than $50 million, it says.

Besides Obama, McConnell's 50 percent figure includes authors, actors, athletes, and others who employ few if any workers, as well as hedge fund firms and major law partnerships most people wouldn't consider small. 'We are being over-inclusive in our use of small business income,' says Edward D. Kleinbard, a former staff director of the Joint Committee on Taxation who is now a University of Southern California law professor. [BusinessWeek9/23/10, emphasis added]

The American People Support Higher Taxes As One Ingredient In Reducing Deficits

In 27 Separate Polls Over The Past 10 Months, Americans Support Higher Taxes To Reduce The Deficit. Bruce Bartlett, a former adviser to President Ronald Reagan, prepared a chart of 27 polls dating back to November, 2010, that show public support for tax increases as a means to reducing deficits:

Can/Should the Budget Deficit Be Reduced with Spending Cuts Alone or Should There Be Some Increase in Taxes?

 

Poll

 

Date

 

Some/All Taxes

No Taxes/

All Spending

New York Times/CBS News

9-16-11

74

21

Bloomberg

9-14-11

48

38

Associated Press

8-26-11

69

29

Gallup

8-10-11

66

33

CNN

8-10-11

63

36

McClatchy/Marist

8-9-11

68

29

New York Times/CBS News

8-4-11

63

34

CNN

8-2-11

60

40

Ipsos/Reuters

7-26-11

68

19

Rasmussen

7-25-11

56

34

CNN

7-21-11

64

34

Washington Post/ABC News

7-19-11

66

32

NBC News/Wall Street Journal

7-19-11

62

27

CBS News

7-18-11

69

28

Quinnipiac

7-14-11

67

25

Gallup

7-13-11

73

20

Washington Post/ABC News

6-9-11

61

37

Ipsos/Reuters

6-9-11

59

26

Bloomberg

5-13-11

64

33

Ipsos/Reuters

5-12-11

61

27

Gallup

4-29-11

76

20

USC/Los Angeles Times

4-25-11

62

33

New York Times/CBS News

4-22-11

66

19

Washington Post/ABC News

4-20-11

62

36

Washington Post/ABC News

3-15-11

67

31

Washington Post/ABC News

12-12-10

62

36

Associated Press/CNBC

11-26-10

65

33

Average

 

64.5

30

[CapitalGainsAndGames.com, 9/19/11]

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