Study: U.S. would lose 710,000 jobs in tax rise

The U.S. would lose 710,000 jobs and economic output would decline by 1.3%, or $200 billion, if tax cuts for high earners are allowed to lapse, said a report prepared for the U.S. Chamber of Commerce and other supporters of the tax breaks.

The study by Ernst & Young LLP supports Republican efforts to extend all of the George W. Bush-era tax cuts set to expire at the end of the year. President Barack Obama called on Congress last week to pass a one-year extension of tax cuts for married couples making less than $250,000 a year while letting rates rise for higher earners.

“The higher tax rates will have significant adverse economic effects in the long run: lowering output, employment, investment, the capital stock and real after-tax wages when the resulting revenue is used to finance additional government spending,” wrote the report’s authors, Robert Carroll and Gerald Prante.

In addition to the Chamber of Commerce, the largest U.S. business lobby, the report was issued on behalf of the Independent Community Bankers of America, the National Federation of Independent Business and the S Corporation Association.

The report’s authors said they used an Ernst & Young economic model to examine the “long run” effects of an increase in the top tax rates. The report didn’t give details on when the job and economic losses would occur, although an end note said two-thirds to three-fourths of the long-run effect would occur within a decade.

If Congress doesn’t act, all individual income tax rates will increase in 2013, as would rates on capital gains, dividends and estates. Republicans want to extend the current rates for a year and overhaul the U.S. tax code.

A Senate Democratic proposal would extend the tax cuts for income of individuals under $200,000 and married couples under $250,000. The top rates on dividends and capital gains would increase to 23.8% from 15% and the top rate on estates would go up to 45% from 35%.

Democrats maintain that high-income taxpayers can afford to pay more to help reduce the budget deficit. The Obama administration disputed the study, saying it gets “the president’s tax cuts wrong” and employs “flawed assumptions.”

In a post on the White House website, Amy Brundage, a spokeswoman, said the study “fallaciously assumes that the tax cuts are used to finance additional spending, ignoring the benefits of what the president actually proposed, which was to use the revenue as part of a balanced plan to reduce the deficit and stabilize the debt.”

Republicans say raising anyone’s taxes isn’t worth the economic harm they say would result.

“Our economy is still struggling under President Obama’s policies, and his massive tax hike will only make things tougher,” U.S. House Speaker John Boehner, an Ohio Republican, said in a statement. “It’s one of the worst possible ideas at one of the worst possible times for families and small businesses.”

U.S. Rep. Dave Camp, R-Mich., and chairman of the Ways and Means Committee, called for “comprehensive tax reform that will provide the certainty these entrepreneurs need.”

“Rather than double down on tax hikes that will make it harder to get America back to work, it is time to stop the tax hike — for all taxpayers,” Camp said in a statement.

U.S. Rep. Sander Levin, D-Mich., and the top Democrat on the Ways and Means panel, said the report is flawed because it makes alternative assumptions that revenue from higher tax rates could be used to finance a higher level of government.

“The president has made clear this revenue should be used for deficit reduction,” Levin said in a statement.

Asked about the report, House Democratic Whip Steny Hoyer of Maryland said few, if any, Democrats with whom he has spoken have qualms about letting the tax rates for high earners lapse at year’s end.

The House plans to vote on extending the Bush-era tax cuts the week of July 30. Second-ranking Senate Democrat Dick Durbin of Illinois said that chamber is likely to vote on its plan the week of July 23.