Tuesday, July 17, 2012

Obama vs. Ernst and Young?

NOTE: Apologies for the long delay between posts.

  • White House Dismisses E&Y Analysis of Eliminating Bush Tax Cuts

  • Ernst and Young Study Says Tax Hike on Rich Could Cut 700K Jobs

  • Big Four CPA Firm Ernst and Young released a study today saying that four tax proposals of the Obama Administration: ending Bush tax cuts for taxpayers making over 200K/250K; reinstating a limitation on itemized deductions for high-income taxpayers; making dividend income fully taxable and increasing the basic capital gain rate to 20% for high-income taxpayers and instituting a new 3.8% tax on investment income would decrease national output by 1.3% ($200 billion); employment by 0.5% (710,000 jobs) and worker real wages by 1.8%.  The study was funded by a variety of business groups such as the National Federation of Independent Businesses and the U.S. Chamber of Commerce.  Reaction was predictable, House Speaker John Boehner castigated the president for adding another barrier to recovery while House Democrat Sander Levin criticized the study for bias and failing to consider all potential uses of extra tax revenue and Obama economic advisor Jason Furman also criticized the failure of the study to consider counterbalancing benefits of other Obama tax cut proposals.

    I can understand Levin's critique: the presence of business group funding leads to an appearance of conflict of interest and the study should have looked at the possible use of the tax hike on deficit reduction and not just spending or a "tax rebate" style cut [counterpoint: past history suggests that in practice Washington is MUCH more likely to use tax increases for extra spending vs. deficit reduction].  Furman's attack of the study is more questionable: he seems to be double counting the tax revenue from the extra "fair share" taxes both to reduce the deficit and to fund targeted Obama tax cuts.


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