And new research by economists at the University of Chicago shows small businesses are mainly skilled craftspeople, lawyers, doctors, real estate agents, shopkeepers and restaurateurs, and most small businesses do little innovation. The researchers also found that once established, most small firms do not grow or are not expected to grow. Moreover, many of them do not want to grow.
Putting this all together, it can now be said that only a small fraction (8 percent) of tax benefits for the highest-earners goes to small business. And only a fraction of that fraction goes to small business that create jobs.
Of course, any tax increase is likely to have some negative effect on jobs, and a tax increase on upper-income people is no exception. The important conclusion to draw from the new research is that a tax hike on the financially successful would not have an inordinate effect on job creation. It is not true, as Republicans imply, that the brunt of the tax increase would be borne by the sector of the economy where most jobs are created.
If Democrats can craft an effective message that conveys the thrust of this new research — one that emphasizes the fact that tax cuts for high earners have little effect on job creation — the path would be cleared for Obama to focus on a populist message.
Requiring the most successful — who already pay the lion’s share of income taxes — to pay more is primarily a political equation framed in the guise of “fairness,” not growth. If we must have a tax increase to bring the deficit under control, there is nothing wrong with focusing it on those taxpayers most able to afford it.
Martin Sullivan is a contributing editor to Tax Analysts’ daily and weekly publications and a regular blogger on Tax.com.