A Project of The Annenberg Public Policy Center

FactCheck Mailbag, Week of Sept. 28-Oct. 4

This week, readers sent us comments about small business taxes, revisionist history and the Congressional Budget Office.

In the FactCheck Mailbag, we feature some of the e-mail we receive. Readers can send comments to editor@factcheck.org. Letters may be edited for length.

Taxes May Increase Small-Business Spending

This is a response to the small business tax section of "FactChecking ‘The Pledge’" [Sept. 24].

Either I am being really stupid, or a major point regarding small business taxes is being missed. The point is that small business EXPENSES are NOT TAXED. Only the income is taxed. Much has been made in publicity about the pledge about how this tax on small businesses will hurt small business investment. Not so — because that investment is deducted from earnings during the calculation of income. In fact, since small business owners now face a situation where they face higher taxes on income, they may choose to invest in the business (higher business expenses) rather than pay the money as taxes. Thus, higher taxes may actually INCREASE small business spending.

All of this ignores the myriad ways small business owners — particularly agricultural business owners — have to shift expenses between business and personal. Yes, wealthy small business owners will pay more in taxes on the profits from the business. They will pay more on the money that is NOT RE-INVESTED in the business. This tax won’t hurt the ability to invest in the business.

I can’t tell you how many times I have looked at my estimated taxes in mid-December and my business income and expenses and decided to make a major business investment before the end of the year rather than pay that same amount in additional income taxes. I cannot tell you how many other small business owners have told me about doing the same thing.

I really think the way this has been presented is misleading and disingenuous. I’m very disappointed in the press for quoting the spin verbatim instead of thinking about this for thirty seconds. Your fact-check is far better than most press reports about the pledge, but it completely missed the point that it is profits, not earnings, that are being taxed.

The other point being missed is that people taking more than $250K/year out of a business are still high-income taxpayers and the fact they earn that money through self-employment and business ownership doesn’t (shouldn’t) make them special and exempt from taxes. Most of that money is essentially taken out of the business! The whole spin is blatantly false and it just makes my skin crawl.

Kim Upper
Huntsville, Ala.


No Love for CBO

Your recent piece on whether the stimulus created jobs states that it did as an absolute fact ["Did The Stimulus Create Jobs?," Sept. 27]. The only way to prove this would be if there was a controlled experiment with and without the stimulus spending over a long period of time. This is of course impossible.

It is true that the CBO had a report giving its estimate of jobs created, but it is not a "fact" that they were correct and reasonable people can disagree with their models. Furthermore, there is the serious question of what time period we are talking about. One-time government aid to states can surely "save" public sector jobs for a period of time until those funds run out, but the long term effect of that cash infusion on employment is far less certain. Without structural reforms, those jobs will likely disappear as soon as the stimulus funds run out. Furthermore, employment may ultimately be even lower than it would have been without the stimulus if the stimulus funding discouraged needed structural reform that would have helped the economy and ultimately led to more efficient use of resources. Stimulus spending from borrowing, rather than savings, also means employment is likely reduced in the future by the burden of all the added debt on economic growth.

Therefore, it is likely more correct to say stimulus saves or creates jobs in the short run by an uncertain amount, but over the intermediate or long term it may in fact cost jobs. If stimulus always successfully raised employment as suggested, why not just do more and more of it?

I think it is unfair to accept the CBO estimates as fact that at least 1.4 million jobs were "saved or created" because of the stimulus spending. Those models would have made that prediction regardless of what actually happened, so under that test the stimulus could never be unsuccessful because the models would always assert things would have been worse.

Of course, it is just as unfair to say as fact that the stimulus created no or very few jobs, but that can be someone’s opinion without them lying. They just need to disagree with the modeling done by CBO estimating the effect.

David Spector
Los Altos, Calif.

In discussing the GOP’s new "Pledge to America", you reference the CBO as stating that malpractice and defensive medicine costs only account for 0.5% of health care costs. I’m wondering why you use the Congressional Budget Office’s estimates of money spent on defensive medicine, instead of numerous academic articles that give numbers ranging from 5-8% of health care costs, especially given that the CBO refused to even acknowledge defensive medicine and malpractice contributed to health care costs until very recently. Academic authors writing in legitimate journals, such as NEJM and JAMA, recognized this 15 years ago, as would anyone with common sense. Given the CBO’s lack of willingness to admit that defensive medicine plays a role in bloated health care costs, why cite them as a credible source?

Kate Swanson
Chicago, Ill.

FactCheck.org responds: In fact, the overwhelming majority of independent studies prior to 2009 showed no measurable effect on health care costs from "defensive medicine." A single study in 1996 (not "numerous" studies) concluded that caps on damage awards could hold down overall medical costs by 5 percent to 9 percent, but was not supported by other research. We reported on this in our 2004 article, "President Uses Dubious Statistics on Costs of Malpractice Lawsuits." CBO said then that it could detect "no statistically significant difference in per capita health care spending between states with and without limits on malpractice torts." Only recently has new research shown any significant effect — but still a small one. For a discussion of the more recent scholarly work that led CBO to revise its conclusion, see our 2009 article "Malpractice: Savings Reconsidered."


Diagnosing Bias

I submit my question with the utmost respect: how can I feel confident that you do not possess a bias against conservatives? I would appreciate if you can point out evidence towards your objectivity.

Alejandro Kepfer
Houston, Texas

FactCheck.org responds: We apply the same standards of factual accuracy to liberals and conservatives, Democrats and Republicans. We believe any fair reading of our total output will show that we’ve criticized both sides whenever the facts warranted, and we are happy to let our work speak for itself.