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Continued: St. Anthony: Do tax breaks for rich really 'create jobs'?

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Last update: July 16, 2012 - 11:59 AM

President Obama played a good political hand last week -- one that contains some economic merit -- by calling for Congress to extend the Bush tax cuts at the end of this year for all Americans but the less than 2 percent with federally taxable income of more than $250,000 a year, after deductions and credits.

The president's economic themes appear to resonate with a growing number of voters, according to a poll from the Pew Research Center on Friday. Obama was seen by 48 percent as the candidate most likely to improve the economy, while Mitt Romney's share dropped to 42 percent.

Obama, who's running a populist campaign, agreed to extend the 2001 cuts for all in late 2010 for two years under a compromise with the Republican leadership. Not this time. Senate Republican Leader Mitch McConnell and his troops charge that Obama's plan will hurt the "job creators" and amounts to "class warfare."

As billionaire investor Warren Buffett has said, his class won.

Moreover, the wealthiest are not necessarily the job creators. The seven-figure paydays of the past decade have gone to investment managers, hedge fund and buyout jockeys. Their No. 1 job, as it was for Romney when he ran LBO firm Bain Capital, is making a return for investors, not adding workers.

And the chief executives at many of the United States' largest public companies are heading for their third year of record profits and paydays. In Minnesota, businesses on the Star Tribune 100 list of the largest public companies employed fewer workers in 2011 than in 2007. Leaner companies have profited hugely from higher worker productivity since 2009.

Meanwhile the income gap between the rich and the working class has accelerated. Real wages for workers have barely budged for 30 years.

"Even Romney says he's not worried about the rich," quipped David Cleveland, the retired CEO of Riverside Bank, who made his money staking small-business entrepreneurs for 30 years before he sold to Associated Bancorp a decade ago. "The wealthy are not even close when it comes to being entrepreneurs.

"The entrepreneur got an exit slip from another job, or they're immigrants or somebody with a passion to try something and they would pledge their house and a 12-foot fishing boat, not a yacht."

Entrepreneurs drive Fords

Cleveland said he made business loans to people "in Fords and Chevies, not Jaguars." In his experience, he said, "the best entrepreneurs don't have toys, but they have passion and they want to build something and grow."

Speaking of Fords, Alan Mullaly, the CEO of resurgent Ford Motor Co., said recently his biggest fear is that the middle class in the United States and Europe will wane. Ford, which plans to add thousands of U.S. production jobs, needs middle-class customers with growing incomes and confidence to buy cars.

Mark Sellner, adjunct professor of taxation at the University of St. Thomas and a small-business tax consultant, said, "Some of my wealthiest clients started out eating dog food in the basement and got their business going by charging on their Visa card. I don't begrudge them their success. And I'm not worried about them."

Income and capital gains tax rates generally were higher in the 1970s, 1980s and 1990s, Sellner noted. He doubts Obama's plan will "stifle job creation."

Mark Haveman, executive director of the nonpartisan Minnesota Taxpayers Association, said both parties tend to overstate their cases. He and Cleveland said dynamic job creators tend to be disaffected former employees and other innovators who start their own business with their own equity or help from family or "angel" individual investors. And sweat. They have a vision that they can provide a better wingnut, pizza or business service than their former boss.

At the end of the day, Cleveland, a banking entrepreneur himself, and Sellner say that the biggest inhibitor to business confidence and expansion is the no-compromise tactics between the two parties in Washington.

What's needed? Compromise

McConnell pledged to make Obama a one-term president. And that seems to matter more than anything.

"The Republicans should be willing to compromise and get this tax matter settled at $500,000 [in taxable income]," Cleveland said. "I also blame Obama. He needs to try and bring us together."

Sellner added that Obama failed by not championing his own Simpson-Bowles long-term deficit-reduction commission recommendations of 2010. He's right.

That bipartisan group of former legislators, economists and businesspeople recommended a fair mix of reductions in entitlement and defense spending, along with revenue hikes. But don't count on Obama, who tried to revive his version of Simpson-Bowles last summer, bringing up those issues before the election. Mandatory spending cuts that kick in at the end of this year are going to gore a lot of oxen, including the Pentagon. A bipartisan deal would feel better.

Todd Rapp of public affairs firm Himle Rapp & Co. Inc. polls Minnesota businesses on their political-economic concerns every year for the Minnesota Chamber of Commerce.

"Minnesota businesspeople know we have relatively high taxes, but they also believe we have a good business climate," Rapp said. "If Congress could come forward with one tax plan, which might cost some businesspeople something, and say we're going to keep it like this ... a lot of businesspeople would say, 'OK, I know the rules for five years.' And they would plan and make investments.

"But politicians make one-year decisions. And businesses like to plan for five years."

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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