Continuing his attempts to distort President Obama’s small business record, Mitt Romney is pushing a misleading, industry-financed study to falsely claim that the President’s policies in support of small businesses will somehow cost jobs. Done by a former Bush appointee at the behest of industries that already oppose the President’s policies, the Ernst & Young report contains flawed assumptions, errors, and misleading statements that are at odds with findings from the independent Congressional Budget Office, the Joint Committee on Taxation, and even House Budget Chairman Paul Ryan’s own budget proposals.
Principal Deputy Director of the National Economic Council Jason Furman lays out what the study got right, got wrong, or just plain ignored:
No, allowing tax cuts for the wealthiest Americans to expire will not be used to finance additional spending—it will be used to reduce the deficit. President Obama wants to let the Bush tax cuts expire for those who earn over $250,000 a year, resulting in $1 trillion in savings over 10 years. Those savings are part of a balanced plan intended to reduce the deficit by more than $4 trillion—a plan that also includes $2.50 of spending cuts for every $1 of revenue. But, as Furman notes, “rather than modeling the President’s proposal to reduce the deficit, the headline numbers in the study explicitly assume that the revenue would be used entirely to finance additional spending. In fact, the study explicitly states that ‘using the additional revenue to reduce the deficit is not modeled.’”
Yes, the President has proposed new tax cuts for hiring and investment. On top of allowing businesses to write off new investments through the end of 2012, President Obama wants to enact a new 10% tax credit for businesses that hire and raise wages—a credit that will provide businesses with $80 billion over the next two years. As Furman points out, “Not only are these tax cuts larger in dollar-terms than the near-term tax increase for the top two percent of Americans that would result from letting the high-income tax cuts expire, but they are far better targeted toward boosting jobs and growth. In fact, even Chairman Paul Ryan’s budget shows that the President supports taxes that are $42 billion lower in 2012 and 2013 than under the Republican plan.” The Ernst & Young study, however, selectively ignored these policies entirely.
Yes, the President’s policies will support the economic recovery. The study actually acknowledges that the short-term effect of extending the Bush tax cuts for millionaires and billionaires will be less than the impact of the middle class tax cuts the President is pushing—which would prevent a tax increase for 98% of families and 97% of small businesses—noting that a “disproportionate share of the tax change is likely to be channeled through savings for taxpayers facing the top tax rates as compared to other taxpayers.” Independent analysts and the Congressional Budget Office agree: The President’s proposal to only extend the tax cuts for middle-class Americans “would be more cost-effective in boosting output and employment in the short run because the higher-income households that would probably spend a smaller fraction of any increase in their after-tax income would receive a smaller share of the reduction in taxes.”
No, the study’s conclusions don’t come close to tracking with estimates of other analysts, including the Bush administration’s Treasury Department. As Furman notes, the study is based on unrealistic assumptions, especially about economic impacts of tax cuts, that “lead [the study] to find a larger increase in long-run output and about twice as large an effect on employment over the long-run” than what the Bush administration’s Treasury Department found when conducting a similar analysis of extending the Bush tax cuts. In fact, the study assumes “a labor supply response to tax rates that is about 10 times larger than what the Congressional Budget Office assumes” for medium- and high-income earners. Furman also notes that the study completely ignores recent history. The fact is that, under the President’s plan, the income tax rates for millionaires and billionaires will return to the same rate they were in the 1990s, when the economy created 23 million jobs.
To understand why a study would assert conclusions that are so wildly out-of-line with independent and nonpartisan analyses, Americans should take a look at who is backing the study: The Chamber of Commerce and the National Federation of Independent Business. The Chamber of Commerce plans to spend $100 million on the election this year to protect the Republican majority in Congress in what they’re calling “the first insurance policy,” should the President be re-elected.
Considered “a bastion of Republicanism,” the NFIB has a long record of “lobbying for issues that benefit big businesses, not necessarily small ones.” The group helped lead the fight against the health reform law, and up until 2006, was routinely ranked as a top lobbying group, thanks to its “fealty to Republicans.” The group even takes funds from Karl Rove’s Crossroads GPS, a super PAC that is playing a central role in Romney’s efforts to defeat President Obama.
Given the groups that backed the Ernst & Young study, it is not surprising that the study drew false and wildly inaccurate conclusions that conveniently support Romney’s equally false attack. Share the facts with your friends and family to spread the word about the President’s strong record in support of American businesses and job growth.