Are the Super-Rich Really Job-Creators?

In a New York Times op-ed column today, the ever-surprised economist, Paul Krugman, argued that it makes sense to tax the rich (“Things to Tax: http://www.nytimes.com/2011/11/28/opinion/krugman-things-to-tax.html?_r=1&ref=opinion). To those who say taxing the rich wouldn’t raise much revenue, he counters that “The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money…” Let’s note also, that’s from just one-tenth of one percent of taxpayers.

Republican Senator John Kyl is ready with a well-worn comeback. Also in the New York times today, Kyl argues that the Bush tax cuts for the wealthy should be continued because, “increasing taxes on the most affluent Americans, including small-business owners who report business income on their personal tax returns, would undermine the fragile economic recovery. The best way to hurt economic growth is to impose more taxes on the people who do the hiring…” (http://www.nytimes.com/2011/11/28/us/politics/senator-questions-extension-of-tax-cut.html ).

This is a common Republican refrain, though patently bogus. Do the top one-tenth of one percent of income earners in America actually “do the hiring?” Notice that Kyl’s criterion is “small-business owners who report business income on their personal tax returns.” That’s a different group than the top 0.1% of income earners.

Anybody can report business income. That doesn’t mean they are creating jobs. If you sell some stuff on Ebay, you should report that as business income, even though it doesn’t make you a job creator and it doesn’t automatically put you in the top 1% of earners.

What is “business income?” The treasury department defines small business income as any ordinary income, long-term or short-term gains, from sole proprietorships, S corporations, partnerships, estates and trusts. (factcheck.org, March 6, 2009).

By this definition, are the rich the small business owners? 73% of Americans in the top two tax brackets report some kind of business income on their tax returns, but that does not mean they are “hiring employees” or “creating jobs.” They could be just cashing their trust fund checks.

It is a crude sleight of hand to suggest that anyone who is rich is automatically a job-creator. If that were true, it would be hard to explain why employment has not jumped way up over the past ten years while the incomes of the upper 1% of Americans rose 18 percent. (http://mediamatters.org/research/201110200011). It must be that all those rich people were not actually “hiring,” as Republicans claimed.

Some of the super-wealthy are corporate executives whose companies do create many jobs. It is hard to imagine that increasing the marginal tax rate on their personal income would cause their companies to hire fewer people. And anyway, they are not “small” business owners, the ones who actually create most of the jobs in America.

In fact only 27% of upper income tax returns show business income that makes up more than half of wages. Presumably, a real small business owner would take home most of his or her wages from the business (factcheck.org, March 6, 2009). The vast majority of people who report business income on their tax return are not running a small company that’s on a hiring spree. And even among those who are, only 2% of them earn enough money to make it into the top tax brackets (factcheck.org).

The categories, “rich” and “job creator” are almost non-overlapping. Yet Republicans routinely equate them. It is a spurious equation and I can’t understand why the news media let it go uncommented. Even Krugman doesn’t mention it. It is a completely false argument that taxing the rich destroys jobs. How Republicans continue to get away with spouting such nonsense is a mystery.