Taxes And Small Business Job Growth

The current argument between Democrats and Republicans is over whether those making over $250,000 should have their tax cut (received in the Bush administration) extended. The Democrats say no -- that the tax rates for the rich should go back to the level they were at in the Clinton administration, because more revenue is needed to help pay down the deficit.

The Republicans counter that raising taxes on those making profits of more than $250,000 a year would hurt many small businesses, and thus hurt private sector job growth (since most jobs are created by small businesses). That is pure bunk. Studies have shown that at most, only about 3% of small businesses would be affected by the rise in taxes for the high  income earners.

But the argument is also shown to be nonsense by looking at the figures for small business job growth in both the Clinton and Bush years. As the chart above shows (from the Center on Budget and Policy Priorities), the small businesses did very well during the Clinton administration's higher taxes for the rich. In fact, small businesses' annual job growth percentage was more than twice as high in the Clinton administration than in the Bush administration (after the tax cuts were enacted).

And don't think the average annual job growth figures for the Bush administration are that low just because of the recession (caused by his trickle-down policies). The above figures do not include the last year of the Bush administration -- the year the nation was thrown into recession.

The truth is that the Bush tax cuts did not help small business job growth at all. The lower rate of job growth shows that the tax rate has nothing at all to do with business health or job creation -- only demand can do that. In times of high demand for small business products/services their profits will rise and new jobs will be created (because those jobs are needed to meet the high demand). And when demand diminishes, so will profits and job creation. That is simple economics.

Don't believe the Republican lie that not extending the tax cuts for the rich will hurt job growth. It won't affect job growth at all, but it will help the government to start to reduce our deficit. A majority of the American public already knows this, and favors letting the tax cuts for the high income earners expire. President Obama and the Democrats need to stand firm on this issue.