Last week’s column examined Speaker John Boehner’s claim that the Republican hold on the U.S. House represents a mandate against raising income tax rates on those making more than $250,000 a year, the wealthiest 2 percent.
In reality, more than half a million more citizens voted for Democratic U.S. House candidates than Republicans. Only extreme gerrymandering following the 2010 census preserved Boehner’s majority.
This week, let’s take up another Republican argument, that raising the marginal tax rate on the top 2 percent of wage earners would cripple the “job creators,” small business owners and entrepreneurs putting off decisions to hire.
Before delving into the relationship between tax rates and economic growth, bear in mind we’re talking about marginal income. In other words, only income above $250,000 would be taxed at a higher rate. Also, keep in mind that the rich have benefited greatly in recent years, the top 1 percent now controlling more wealth than the bottom 90 percent put together.
Those points, and more, are made in a recent study by the Innovation Ohio Education Fund, a sister organization of Innovation Ohio, a progressive think tank in Columbus.
It is part of a new coalition, including labor unions, activists and Obama campaign workers, putting pressure on House Republicans to make a deal with the president on tax rates to avoid going over the “fiscal cliff.”
No rep from Ohio has budged so far, although Rep. Steve LaTourette, of Bainbridge Township, who is retiring, recently said there is growing sentiment in his caucus to compromise on tax rates, if the president will give on entitlement reform.
Locally, the coalition is targeting freshman Republican Jim Renacci, a former Wadsworth mayor and wealthy businessman who won a bruising re-election battle against Democratic Rep. Betty Sutton.
If Obama was explicit about his plan to raise taxes on the wealthy, Renacci made opposition a centerpiece of his campaign, saying “job creators” would be stifled.
Earlier this month, Renacci called Obama’s position on taxes “a joke” and said raising tax rates would “hammer our small businesses.” Not much wiggle room there.
While Renacci might be applauded for sticking to his guns, accurately representing the interests of Republican donors, and for correctly emphasizing that solving the deficit problem must include serious spending reductions, what about his core contention about taxes and the economy?
As explained in the amply footnoted Innovation Ohio Education Fund report, it doesn’t hold up to close scrutiny. First, according to a U.S. Treasury study, only about 3 percent of small business owners earn more than $250,000 a year, and some of them, such as lawyers and hedge-fund managers, don’t do much hiring.
Basically, the report notes, economic growth is generated by demand from a rising middle class. History shows no solid relationship between tax rates and the economy.
During the the post-war surge in the 1950s, the top tax rate was 92 percent. In more recent years, President Clinton raised the top rate from 35 percent to 39.6 percent (where President Obama wants to take it), and the economy added 22 million new jobs. When Republican George W. Bush came into office, he cut tax rates back to 35 percent, leading to a net of 1 million new jobs in eight years, the lowest growth rate since the end of World War II.
Nobody likes taxes, and those who have accumulated or inherited wealth can be adamant that they are getting soaked, a sentiment they are glad to relay to their representatives in Congress.
But saying so doesn’t make it so, for Renacci or anybody elese. As a recent New York Times analysis showed, the overall tax burden (federal, state and local) faced by most Americans has gone down since the 1980s across all income groups,with a sharp drop among those making more than $350,000 a year.
Since it would be almost impossible, and politically suicidal, to raise a fair amount of new revenue through eliminating loopholes and deductions, that leaves a tax hike for the rich on the table.
In my Nov. 29 column, I recounted post-election comments by Bruce Tague, Mitt Romney’s Ohio political director, who pointed to the campaign’s success in flipping five counties to the Republican side, among them Stark County.
Tague made his remarks Nov. 15, well before the final count revealed that President Obama carried Stark County by 851 votes.
Hoffman is a Beacon Journal editorial writer. He can be reached at 330-996-3740 or emailed at email@example.com.