The art of fact checking had its highs and lows over the course of the last election, but the Washington Post‘s recent review our study by Ernst & Young has to be a new low.

The Post reviewed the study conducted by Ernst & Young looking at the long-term economic effects of higher marginal tax rates on wage and investment income. The study was entitled the “Long-run macroeconomic impact of increasing tax rates on high-income taxpayers in 2013″ and it found that allowing rates to rise to President Obama’s preferred levels would result in lower levels of employment, wages and investment.

This finding is consistent with numerous other rigorous studies of the impact of higher marginal rates on investment and job creation over time, and it is also consistent with a recent analysis by the Congressional Budget Office (CBO) which makes clear that these same policies will have negative economic consequences in the short-term as well.

But the Post focuses on none of these aspects. Instead, it begins by questioning the credibility of the trade associations that asked for the study and then it heads downhill from there. So much for a “just the facts,” approach to fact checking.

Here are the key points made by the Post and our response:

Washington Post: “According to an aide, Sessions obtained his figure from a study prepared last year by two economists at Ernst & Young for the Independent Community Bankers of America, the National Federation of Independent Business, the S Corporation Association and the U.S. Chamber of Commerce – all opponents of the president’s agenda.

That might be the first clue that this is potentially not a neutral document. One of the authors is also a former official in George W. Bush’s Treasury Department.”

Response: The Post dismisses the study because of the identity of the trade associations that asked E&Y to produce it?  Seriously? By this standard, anything written in the Washington Post can be dismissed since it endorsed President Obama’s reelection efforts.

Moreover, the organizations listed represent literally millions of businesses employing tens of millions of workers. If these organizations are not allowed to have a point of view in a debate over tax rates and economic growth, who is?

Oh, and the study was released this year, not last.

Washington Post: “The study is titled ‘Long-run macroeconomic impact of increasing tax rates on high-income taxpayers in 2013.’ In other words, this is not an immediate impact, but the ‘long run.'”

Response: Yes, the study is titled, “Long-run macroeconomic impact of increasing tax rates on high-income taxpayers in 2013.”  Enough said. For the short-term effects, refer to the CBO fiscal cliff analysis released last week.

Washington Post: “Oh. So, even if one accepts the assumptions in this model - a big if - it still means that the loss of 700,000 jobs would not come in the first year, or by the end of Obama’s second term, or even a decade from now.”

Response: Why is it a “big” if?  Exactly what assumptions are in question? The Post only lists one specific assumption (addressed below). Are there others? Is this “fact checker” skilled enough to determine which assumptions made in a general equilibrium model put together by two skilled economists employed by one of the top accounting firms in the world are credible and which are not? Of course not.

Washington Post: “There is also another revealing endnote: ‘Using the additional revenue to reduce the deficit is not modeled.’ That means the analysts did not even study the effect of Obama’s stated purpose for raising taxes; the 700,000 figure assumes that the revenue raised from the tax increase would be used for increased government spending. Yet presumably any deal on fixing the fiscal cliff would result in a lower federal deficit, since all sides agree they have that goal.”

Response: The Post questions one of the key assumptions in the E&Y study — that higher tax rates would lead to higher spending — by making its own policy assumption– that the revenues from higher rates would be used for deficit reduction.

Certainly, the Post is free to believe the new revenues will be used for deficit reduction and not spent, but is that belief credible? Is there a history of that happening? Our perspective is that history and evidence fall on the side of the study — tax increases tend to be spent, not saved.

To argue otherwise is an opinion, not a fact.

Washington Post: “In other words, focusing just one variable – an increase in taxes - is a bit simplistic. By itself, raising taxes likely leads to a reduction in employment. But the use of that additional revenue over the long term is also important - such as whether it is used to reduce budget deficits or boost government spending.”

Response: And there you have it — the Post agrees with E&Y that raising marginal tax rates leads to lower employment, but it then assumes that other policies not studied by E&Y would offset those losses. But the whole point of the E&Y study was to look at the impact of higher rates in isolation. All things being equal, higher marginal rates lead to lower levels of investment and job creation.

Perhaps if we agreed with all the assumptions made by the Post’s “fact checker” then maybe E&Y would have produced a different study. But we don’t agree with those assumptions and we like this study. We are confident it accurately reflects the long-run impact of raising tax rates on wage and investment income.  It is consistent with other studies produced on this question, and it should be taken seriously during this debate. That’s a fact.

200+ Organizations Call on Congress to Make Moves on Entitlement Reform

S-CORP joined with 231 other organizations in a letter sent to the President and Congress last week calling for financially sustainable entitlements. Spearheaded by the U.S. Chamber of Commerce, the letter implores policymakers to “immediately begin a process to fundamentally restructure our nation’s entitlement programs - Medicare, Medicaid and Social Security - and to put these valued and important programs on a sustainable financial path.”

The letter also calls for immediate action on the fiscal cliff – something our Washington Wire readers may have heard us mention a time or two - and echoing past calls (such as ours) for policymakers to firmly commit to tackling comprehensive tax reform in the next Congress. As the letter concludes:

Short term action is not a substitute for long term fundamental fiscal reform. In addition to immediate action on the fiscal cliff, we also urge you to:

  • Firmly commit to tackling comprehensive tax reform in the next Congress; and
  • Agree to develop a long term plan to address America’s excessive spending, particularly entitlement spending.

“Small Businesses Support Tax Hikes” Poll Flawed

 

A poll for a group called the Small Business Majority released last week claims that small businesses support raising taxes on top income earners. As The Hill reports:

A majority of small-business owners believes raising taxes on the highest earners would do less harm to the economy than cutting spending in key sectors, according to a poll conducted for a liberal advocacy group.

The poll for Small Business Majority found that 57 percent of owners said raising taxes on the top 2 percent of earners would be preferable to rolling back spending on education, healthcare and infrastructure.

On items like this, we are big believers in going to the source. The poll can be found here, and the question on raising taxes asks:

Please indicate which of these statements comes closer to your point of view, even if neither one is exactly right.

  • Cutting spending on education, health care and infrastructure will do more harm to the economy than raising taxes on the wealthiest two percent.
  • Raising taxes on the wealthiest two percent will do more harm to the economy than cutting spending on education, healthcare and infrastructure.

Fifty-seven percent of respondents agreed with the first statement, while 32 percent agreed with the second. But followers of the fiscal cliff debate will recognize the false choice in this question — Congress is not confronted with a decision between higher taxes or lower spending on health care, highways and education. Spending on those items has gone up significantly in recent years, and it’s scheduled to rise even higher in coming years. The resolution of the fiscal cliff is unlikely to change that.

On the other hand, taxes are going to go up on nearly one million small businesses unless Congress acts. The CBO says these rate hikes will costs us 200,000 jobs in the beginning of next year. Our E&Y study says the job losses will grow to over 700,000 over time.  Congress can forego those tax hikes, and save those jobs.

That’s the real choice Congress faces this Lame Duck.