Media Matters: Fox Hosts Grover Norquist To Push Tax Myths Amid Spending Negotiations

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November 27, 2012 1:37 AM EST ››› MARCUS FELDMAN

FACT: 700,000 Jobs Claim Based On Report That "Never Examined" Obama's Full Proposals

Ernst & Young: "Higher Marginal Tax Rates Result In A Smaller Economy, Fewer Jobs, Less Investment, And Lower Wages." The study produced by the accounting firm Ernst & Young claimed to examine Obama's proposed higher marginal tax rates, and found that those rates "have significant adverse economic effects in the long-run":

    This report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages. Specifically, this report finds that 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. [Ernst & Young, July 2012]

Wash. Post: Job Loss Claim Based On Ernst & Young Study Is "Simply Absurd." Washington Post fact checker Glenn Kessler reviewed a claim made by Republican congressmen that tax increases proposed by Obama would "destroy nearly 700,000 jobs," based on the analysis by Ernst & Young. Kessler gave the claim three Pinocchio's, calling it "simply absurd," and explained the flaws with the Ernst & Young study, including that "the study never examined what Obama claims he will do with the revenue":

    First, the study was underwritten by the White House's opponents. Second, the study never examined what Obama claims he will do with the revenue -- dedicate it to deficit reduction. And finally, the figure is so "long term" -- more than 10 years away -- that it is absurd to suggest those jobs would be lost in the near term. [The Fact Checker, The Washington Post, 11/9/12]

National Economic Council's Jason Furman: Conclusions Of Ernst & Young Are "Dramatically Out-Of-Line With Estimates By Other Analysts." Jason Furman, the Principal Deputy Director of the National Economic Council, wrote that the Ernst & Young study "fallaciously assumes that the tax cuts are used to finance additional spending, ignoring the benefits of what the President actually proposed," and is "dramatically out-of-line with estimates by other analysts":

    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.

    [...]

    Even setting aside the fact that the study ignores the effects of the President's tax proposals on short-term growth and long-term deficit reduction, the conclusions are still dramatically out-of-line with estimates by other analysts, including not only the Congressional Budget Office but also the Bush Administration Treasury Department. [The White House Blog, WhiteHouse.gov, 7/17/12]

Citizens For Tax Justice: Ernst & Young Study Is "Highly Suspect." Citizens for Tax Justice, a research and advocacy organization focusing on tax policy, concluded that the study by Ernst & Young was "highly suspect" because "it makes methodological assumptions that are out of line with other independent studies":

    A new study by Ernst and Young is grabbing headlines by purporting to show that President Obama's plan to end most of the Bush tax cuts for the richest 2% of Americans would cause job losses over the long term. This study is highly suspect however because it makes methodological assumptions that are out of line with other independent studies, which actually show that  the expiration of the Bush tax cuts would lead to increased economic growth over the long term.

    As the White House explains, the study assumes an entirely unrealistic drop in the labor supply by medium and high income earners due to higher tax rates. Their expected labor supply response is nearly 10 times higher than the non-partisan Congressional Budget Office (CBO) assumes when it makes similar estimates on labor supply effects.

    In addition, the Ernst and Young study makes the bizarre assumption that all of the additional tax revenue will be used for additional spending, rather than for deficit reduction. While it does not explain any reason for this assumption, the effect of it is to eliminate the possibility that the additional revenue will increase private investment by reducing the deficit's "crowding out" effect. [Citizens for Tax Justice, 7/19/12]

Media Matters: Report Was Prepared On Behalf Of Partisan, Conservative-Leaning Industry Organizations. A Media Matters investigation of Ernst & Young found that the report was prepared on behalf of partisan, conservative-leaning industry organizations that have "opposed Obama administration policies, including the Independent Community Bankers of America, the National Federation of Independent Business, and the United States Chamber of Commerce." [Media Matters, 7/18/12]