Not even taxes certain as “fiscal cliff” looms
Benjamin Franklin is famously quoted as saying, “In this world nothing is certain but death and taxes.” Death perhaps. But apparently not taxes, at least in terms of what tax rates will be imposed. And it’s this very uncertainty that keeps business owners and managers hesitant to expand their operations or staffs.
The latest case in point involves the so-called “fiscal cliff” of higher taxes and government spending cuts that looms at the beginning of next year unless Congress addresses the issue during what little time is left in session following the election.
A recent workshop in Grand Junction ably detailed what could happen if Bush-era tax cuts are allowed to expire. A story based on that workshop appears in this very issue of the Business Times. But for the sake of brevity, consider some of these ramifications:
Federal income tax rates will increase from 5 percent to 8 percent for various tax brackets, with the top tax rate increasing from 36 percent to 39.6 percent.
Taxes on long-term capital gains will increase from what was 0 percent and 15 percent, depending on the tax bracket, to 10 percent to 20 percent.
Qualified dividends, which were taxed at between 0 percent and 15 percent, will be taxed as ordinary income.
Under the provisions of federal health care legislation, a 3.5 percent Medicare surtax will be imposed on certain investment income for taxpayers who exceed earnings thresholds.
There’s a possibility, albeit a diminishing one, Congress will actually do something and extend the tax cuts or perhaps even strike sort of compromise that addresses the issue. There’s also a chance Congress could take action early next year and apply the legislation retroactively.
Meanwhile, though, business owners and managers are left to wonder how much they’ll be paying in taxes next year — never a good thing given that tax implications can figure prominently in important decisions about their operations.
It’s important to note, too, that many small business owners file income tax returns and pay taxes as individuals. So corporate tax rates don’t apply.
There are some who question whether or not government policies and regulations actually create the uncertainty and pose the effects about which business owners and managers have complained so bitterly and for so long.
Make no mistake: Government policies and regulations greatly affect the operations of businesses and, in turn, job growth.
Colorado business leaders recently were asked directly about the fiscal cliff in a survey conducted by the Leeds School of Business Research Division at the University of Colorado. Fully 75 percent of business leaders responding to the survey said they expect the fiscal cliff to affect their operations. Among those, more than 50 percent said tax increases and government budget cuts would hurt their operations in terms of hiring and investment decisions. Nearly 32 percent said ongoing political uncertainty makes it difficult to determine how congressional action affects their operations.
As long as taxes and tax rates remain uncertain, businesses and business will suffer. And that much, unfortunately, is certain.