Economic stimulus: subsidize the the consumer or the business owner?
Published: Tuesday, October 23, 2012
Updated: Tuesday, October 23, 2012 21:10
Mitt Romney claims that cutting taxes and increasing deductions on small businesses will promote job growth, when in fact there is no correlation between the two. And what’s more, his interpretation of a small business could prove him dead wrong.
In 1993, President Bill Clinton increased taxes, and from 1993 to 2001, the country saw the job rate for small businesses grow at a rate of 20–499 employees per business, per year, according to the Center on Budget and Policy Priorities.
That number is more than double what it was under the same time frame with the George W. Bush tax cuts, proving there is no correlation between tax cuts and hiring.
If Romney is so concerned with cutting taxes on small business, he should look at the current tax code. He would see they are already near rock bottom. In fact, they are likely at zero, or negative, because small businesses already receive large tax credits for hiring, as well as several subsidies.
So if we go by Romney’s theory and small businesses already receive tax cuts and subsidies, then his plan is essentially already in place. Still, companies are not hiring people at the rates that he says they should.
The reason for that is because companies will not hire more employees until they start seeing the revenues that will finance the expense. And why should they?
William Gale, co-director of the Urban-Bookings Tax Policy Center wrote, “Until they see a pickup in sales, businesses with excess capacity are unlikely to use the proceeds from any tax cuts to hire more workers or expand capacity further.”
For this reason the Congressional Budget Office has acknowledged that while 2.5% of small businesses would benefit from lower taxes, “Increasing the after-tax income of businesses typically does not create much incentive for them to hire more workers in order to produce more, because production depends principally on their ability to sell their products.”
So when you break it down it comes to this: All the money you save in tax cuts and subsidies counts for nothing if the people you are trying to sell things to still can’t afford to buy them. So the problem doesn’t lie in tax burdens on the businesses; it rests in the pockets of the consumers.
But what qualifies as a small business exactly? According to the Romney plan, anything from book sales to speaking fees, and even his dressage horse, Rafalca. Suddenly his tax reform for small business makes complete sense.
In the end, Romney is not actually trying to lower the tax burden on small businesses; he’s trying to give his wealthy friends more tax cuts.