When midnight rolls around on Dec. 31, small business owners won’t be in the mood to celebrate. Instead of popping champagne corks, they’ll see their budgets burst as we go barreling off the fiscal cliff. Small businesses, entrepreneurs and inventors will be staring down at a $607 billion tax increase.
What’s worse is 25 million unemployed and underemployed Americans will have one big hangover on Jan. 1, when it is estimated that as a result of the fiscal cliff, unemployment will rise a full percentage point, with a loss of 2 million jobs.
Why are we at this junction? Blame the growing federal deficit, which now exceeds $16 trillion — up from $9.2 trillion in 2007.
According to Forbes, “among the laws set to change at midnight on Dec. 31 are the end of last year’s temporary payroll tax cuts (resulting in a 2 percent tax increase for all workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite of our paychecks, the end of the tax cuts from 2001-2003 and the beginning of taxes related to President Barack Obama’s healthcare law.”
News reports predict that if the scheduled laws go into effect in 2013, the combination of higher taxes and spending cuts would cut gross domestic product (GDP) by 4 percentage points, sending the economy into a recession (i.e., negative growth).
So what does this means for small businesses, our nation’s most potent job creators?
Higher taxes will continue to erode their ability to hire. It is estimated the anticipated tax increases for the private sector will reach $500 billion and mainly hit small businesses, which have already reduced hiring due to economic uncertainty.
Scott Shane and George Haynes of Montana State University recently told reporters: “For small businesses specifically, the tax increases would impact those who make over $250,000 a year. Raising taxes on those making more than $250,000 would affect the business owners that employ a whopping 93 percent of employees in small businesses. And since many business owners sacrifice for years to reinvest in their business — in anticipation of it paying off later on — the taxes will hit them just as those years of sacrifice start to pay off in higher earnings for the business owner.”
The Washington Post reports that Christopher Whitcomb, tax counsel for the National Federation of Independent Business, noted that “while the tax hikes on the wealthy may impact a relatively small percentage of small businesses whose owners report their profits as personal income, those firms tend to be the ones with the necessary capital available to hire new workers.”
Whitcomb also told the Post that policymakers should keep their hands off tax breaks for entrepreneurs that hire and invest in their businesses and should not allow the current level of tax deduction for equipment purchases to fall as scheduled from $139,000 to $25,000 in 2013.
It doesn’t take a genius to figure out that if Congress and the president can’t compromise on taxes and the deficit, our nation’s unemployed will continue to suffer.
It‘s time for true tax reform that restores confidence in a growth strategy. And it shouldn’t take a fall off a cliff to make this happen.
I was a recent guest on “The Big Picture with Thom Hartmann,” founder of the hyper-liberal Air America radio network. I was once again troubled that like his liberal cronies, who have never created a job in their lives, he actually believes that raising taxes is a viable strategy to create jobs.
They point to the Clinton tax rate of 39.6 percent as if it was a template for today’s economy; however, this was 20 years ago and Clinton inherited the robust Reagan economy.
This isn’t the 1990s, and America’s competitors have gotten stronger since then while we have become weaker. We are no longer the world’s largest exporter and soon will no longer be the world’s largest manufacturer.
With the election now behind us, we have a unique opportunity to do something for the unemployed. Let’s simplify the tax code and get rid of loopholes while reducing the effective tax rate. The Democrats can say they won, by raising taxes. The Republicans can say they won, by lowering taxes.
The American people and, most importantly, the unemployed will win by avoiding the financial cliff. Let’s hope New Year’s Eve 2013 the nation can come together and celebrate once again.
© 2014 Moneynews. All rights reserved.