Potential for tax increases only adds to uncertain business climate

Dan Danner
Dan Danner

 President Barack Obama’s politically based move to block the extension of crucial, soon-to-expire tax provisions will have very real consequences for small businesses. His decision to increase taxes on all Americans who earn more than $250,000 — small business owners in particular — will affect the very businesses in the best positions to create jobs. 

Warned repeatedly of a rapidly approaching “fiscal cliff” that will have lasting economic consequences, the president refuses to steer the economy clear of an impending tax increase of major proportions, even proclaiming “the private sector is doing just fine.” 

But the facts are clear. According to the latest National Federation of Independent Business (NFIB) Index of Small Business Optimism, Main Street reversed its engines in June. Owners’ hopes for better times ahead plunged 3 percentage points, wiping out gains made earlier in the year. 

Nine of the survey’s 10 indicators fell. The indicator for job creation became very weak — far short of that needed to reduce the 8.2 percent unemployment rate in the United States. Weak sales reached the top of the list as the biggest business problem for 25 percent of small business owners, followed by taxes and unreasonable regulations. Credit conditions offered the only positive note. But more than 90 percent of owners have no need to borrow in this struggling economy. 

Small firms, historically the primary source of the nation’s new jobs, are struggling. Many are going under. But the Obama administration shows no intention of tossing them a lifeline. Instead, the president has made it clear he believes the economy’s rescue can only be achieved through higher taxes, bigger bureaucracies and greater regulation, all key components of his new health law. 

That’s why he’s ignoring the red flags being waved furiously by economists, business leaders and worried Main Street entrepreneurs who grasp the danger that the Dec. 31 tax expiration deadline holds. This combination of tax increases and spending reductions could send the economy back into a recession, further exacerbating the outlook for small business owners. But if circumstances unfold as the president hopes, they will generate a huge windfall to fuel more government growth and help pay for Obamacare. 

In all, these tax increases amount to a $500 billion tax bill for the private sector, mainly small businesses whose reluctance to expand is caused by political uncertainty. Allowing the provisions to lapse will end important tax provisions. Most brackets will rise, as will capital gains rates on long-term assets. Dividends will be taxed as ordinary income. Credits for earned income, dependent care and adoptions will cease. 

In addition, estate taxes will leap 20 percentage points to 55 percent, expensing limits will fall, employee payroll taxes will rise by a third to 6.2 percent and 31 million additional taxpayers will be forced to pay alternative minimum taxes. 

It’s not too late. The president can avert the plunge over the fiscal cliff. But a failure to extend these key tax lifelines to small firms will only cause more damage to America’s floundering economy.