Tag: 2001 tax cut

Congress’ Inaction on Taxes Will Be Quickly Felt in Withholding Rates

Most of the conversation around the expiration of the 2001 and 2003 tax cuts has circled around how it would affect the top brackets, since the President’s budget calls for extending the tax rates for the bottom brackets. 

We’re glad that discussion is taking place.  But, considering that it’s almost November and Congress still hasn’t passed ANYTHING, it’s probably important to talk about what will happen if all of the taxes go up.  Most people will operate under the assumption that it won’t affect them right away, but they’re in for some serious sticker shock come January due to changes in withholding rates.

Bloomberg has a great story discussing the repercussions, “Employers in U.S. Start Bracing for Higher Tax Withholding“:

If Congress fails to act, income tax rates will revert to higher levels dating from June 2001.

For a married couple with an income of $80,000, that would drain an extra $221.48 in withholding from a semi-monthly paycheck, according to calculations by the Tax Institute at H&R Block. Married individuals earning $240,000 a year would lose an additional $557.78 to withholding in a single semi-monthly paycheck.

That $200 per paycheck is real money. Let’s hope that Congress has the foresight to recognize the impact.

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Shocking! At Economic Panel, Panelists Talk About Economy

At the meeting of the President’s Economic Recovery Advisory Board on Monday, several attendees thought it would be useful to advise the President on the economic recovery. Off message!

Bloomberg,Business Critics Take Obama ‘Off Script’ at White House Meeting“:

Corporate grievances against President Barack Obama intruded into a public meeting of the president and his outside economic advisory board as three members challenged him on regulation and tax policy.

While the topic of yesterday’s White House meeting was supposed to be education Mark Gallogly, managing partner of the buyout firm Centerbridge Partners LP, pressed Obama on regulatory burdens imposed by his administration.

How could a discussion about the role of business, taxes and regulation be an intrusion into a discussion about the economy?

AOL Politics Daily, “Obama at Odds With 2 Recovery Board Advisers Over Bush Tax Cuts

Professor Martin Feldstein of Harvard University was the first to broach the topic of the Bush tax cuts. He outlined three recommendations to the federal government: expand assistance to those homeowners whose mortgages are “under water” (meaning the debt on their property is greater than its actual value), increase assistance to banks that loan to small business (part of the recently passed small business bill) and extend the Bush-era tax cuts for both the nation’s middle class and top earners over the next two years, “to keep demand alive at a time when the economy is weak.”… [snip]

“There’s this concern about the business community’s attitude about the administration,” said Feldstein. “And it’s not just the business community — it’s high-income individuals, entrepreneurs and others. The increase in the tax on those individuals is a signal that they’re going to have to pay higher taxes, and it may be even more going forward.”

Associated Press, “Obama, panel veer into debate on tax cuts“:

At a meeting of the President’s Economic Recovery Advisory Board, Harvard economist Martin Feldstein pressed Obama to keep all the Bush-era tax cuts, not just the middle-class cuts the president wants to extend.

“That would give a boost to confidence,’’ Feldstein declared. William Donaldson, chairman of the Securities and Exchange Commission, added that an extension would allay business and consumer uncertainty.

The White transcript of the discussion is posted at Whitehouse.gov here.

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Circumnetting a Departing Congress, the Economy and Taxes

Politico, “Biz leaders gloomy on economy

A wide swath of U.S. businesses Tuesday reported that the economy has slowed significantly in the last few months, and they said that the tax stalemate in Washington was a major reason that flagging consumer sentiment is now endangering the recovery.

In separate reports, big business members of the Business Roundtable, along with manufacturers, home builders and the oil industry gave gloomy assessments of the recovery and said Congress’ decision to postpone action on tax cuts until after the election was weighing heavily on consumer sentiment.

The first reference is to the Business Roundtable’s latest CEO survey, which reports: “The CEOs of America’s leading companies plan increased capital spending over the next six months, but have lower sales and employment expectations, according to the results of Business Roundtable’s third quarter 2010 CEO Economic Outlook Survey.”

The second paragraph refers to a briefing hosted by the American Petroleum Institute that featured Dave Huether, the National Association of Manufacturers’ chief economist. For more, see The Energy Tomorrow blog post, “Economists: Higher Taxes Could Harm Economic Recovery.”

The Oil and Gas Journal also reports on the briefing, “New taxes would harm fragile US economy, economists agree.” See also Market News International, “US Econs See Weak Outlook For Recovery; Consumer Confidence Key.”

The Hill, meanwhile, reports this shocking news, “Sanders slams Chamber, NAM in opposing outsourcing bill.” The NAM’s job is to represent its members and manufacturers, among whom there was vigorous opposition. See the “Key Vote” letter. It’s easy to rage about greed, easier than facing the realities of global competition.

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Billionaires? Talk to This Small Manufacturer about Impact of Tax Hikes

Fox Business News talks to a middle-class business owner whose company is going to be hit hard if Congress extends only part of the 2001 and 2003 tax rates, raising taxes on small businesses and higher-income individuals. It’s Drew Greenblatt, owner of Marlin Steel Wire, a board member of the National Association of Manufacturers and a vocal advocate for small business.

The segment explain the investments and commitment that have made the company a success, even as the Chinese stepped up their competition for the market. The tax increases would bring its growth to a halt, Drew says.

The reporter talks to an employee, Nathan Myers, who describes the company’s progress: “It’s grown considerably since when I started. It was kind of small and we did things in a very odd way, and now we’re up in the 21st century now.”

The narrator provides context: “Remember, now, we’re talking about a man who makes less than $500,000 a year, his small business employs 30 Americans, growing because of tax cuts, hard work, and innovation in the face of global headwinds….”

And Drew concludes, “It’s very important for the policymakers to slow it down and realize they’re having big impacts on people who are trying to do things…”

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Whether On Small or Medium, Tax Increases Still Do Harm

In a letter to the editor in today’s Wall Street Journal, Assistant Treasury Secretary Michael Mundaca argues against Kevin Hassett and Allan Viard’s Sept. 3 op-ed claiming that small businesses will be hit by raising individual income tax rates.  Mundaca writes:

The problem with their argument, however, is that it counts any type of partnership income, sole proprietor income, or S corporation income as small-business income… Our analysis indicates that small-business owners under this definition, who would be affected by allowing the top two rates to increase as scheduled, have an average gross income of over $1 million.

So, what we’re quibbling with here is the definition of small-business income.  Mundaca is arguing that a small business with gross income over $1 million isn’t small.  We’ve made the point over and over that manufacturers are capital intensive – one manufacturing press alone could cost $1 million.  Frankly, a small manufacturer with only $1 million in gross income is small!

But, we’re flexible.  If it makes folks feel better, we’ll call them “medium-sized” businesses.   It doesn’t change our position though.  We think that raising taxes on a “medium sized” manufacturer with $1 million in income (which incidentally, would be a $35,000 tax increase) is a bad idea.  And we think it will hurt job creation.

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Wary, Cautious, Even Skeptical — Manufacturing

A roundup of business reaction to the President’s latest proposals:

Bloomberg TV, “NAM’s Timmons Interview on Obama Tax Policy,” an interview with Jay Timmons, executive vice president of the National Association of Manufacturers:

Margaret Brennan, Bloomberg: In reading these specific proposals, it sounds like the President is nodding toward or taking a page from something that you’ve been asking for a while, and a number of Republicans have here:

Timmons: It actually is a page right from our Manufacturing Strategy and our playbook, and what we think needs to occur to improve our economy and create jobs. The problem is, the tax incentives that the President is talking about – two very, very good incentives – it sounds like those are going to be coupled with tax increases in other areas, which could harmful to business, the economy and jobs. And you can’t fix one problem by creating two others.

Brennan: So what are you talking about there? You’re not talking about the individual tax rate on those making more than $250,000 a year.

Timmons: Well, actually, that is one of the issues. You know, 70 percent of manufacturers – this is a fact that most people don’t know – 70 percent of manufacturers file as individuals or S corporations. Higher taxes on manufacturing will harm their ability to make investments, buy new plants and equipment, even if the other tax incentive that the President is talking about exists. And that hurts jobs, and of course, job creation.

Dow-Jones, “Businesses Wary Of Obama Proposal To Expand R&D Tax Credit“:

The R&D tax credit expired at the beginning at this year, and a proposal to extend it for 2010 have run into a Senate logjam.

“It’s good that the president called for a strengthened credit, but the most important message is that there be no gap in the R&D credit for this year,” said Monica McGuire, a senior director at the National Association of Manufacturers.

Forbes, Brian Wingfield, “Obama, Boehner Show Little Will To Reduce The Deficit“:

What about the president’s other ideas? Wednesday, he also argued for allowing businesses to write-off all of their equipment expenses in 2011 rather than deducting the expenses over time. In addition, he’d make permanent the research and development credit. Business groups like the U.S. Chamber of Commerce and National Association of Manufacturers would normally jump at the idea. But a senior administration official says the R&D credit would be paid for by closing tax “loopholes” on multinational companies–not something business groups are likely to endorse.

Human Events, John Gizzi, “Business Leaders Denounce Obama’s Tax Increase“:

Jay Timmons, vice president of the National Association of Manufacturers, agreed. Referring to the selected tax credits supported by the President, Timmons told HUMAN EVENTS, “At face value, a 100% tax credit for plants and equipment and an expanded tax credit are extremely good for business and the economy and jobs.”

However, he quickly added, “unfortunately, the most effective economic growth tool is an extension of the ’01 and ’03 tax cuts, which the President refuses to do in total. Additionally, it is likely there will be a tax increase included which will raise energy prices and other taxes on business.”

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Targeted Tax Cuts, Across-the-Board Tax Hikes

President Obama speaks in Cleveland this afternoon to discuss the economy and offer changes in the tax law to encourage business investment and job creation. Jay Timmons, executive vice president of the National Association of Manufacturers, appeared on a Fox Business segment Tuesday discussing President Obama’s sudden flurry of economic proposals.

You have to look at all the components of the proposal, and I’m afraid we haven’t seen those yet. Taken in isolation, the President’s proposal to create 100 percent expensing for property, plants and equipment over the course of the next 18 months, to expand and make permanent the R&D tax credit, those things are good, not only for manufacturing but for businesses in general. The problem is, we haven’t seen the other shoe that’s about to drop, and that is tax increases that are likely to be part of the proposal…

The expiration of the 2001 and 2003 tax cuts will have a serious impact on the some 70 percent of the small manufacturers that file as S Corporations, paying the individual income tax rates, Timmons argued. 

“By not extending all across the board the individual tax rates, that harms manufacturing and that also hurts their ability to expand, invest and create jobs,” he said.

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Orszag: Higher Taxes Would Crimp Consumer Spending

While we might not agree with everything he says, Peter Orszag makes a compelling argument for extending the 2001-03 tax rates for a few more years.

The former OMB director, writing in his new capacity as a New York Times columnist, today argued:

Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem — take a look at the remarkably low 10-year Treasury bond yield — there is little reason not to extend the tax cuts temporarily.

We couldn’t have said it better ourselves.

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A Myth About Manufacturing

Manufacturers disagree with Treasury Secretary Geithner’s  comments this afternoon at an event sponsored by the Center for American Progress and the American Action Forum in which he stated it is a “myth” that tax increases would hurt small businesses.  Nearly 68 percent of all manufacturers are organized as S-Corporations or other entities taxed at the individual rate. This means they pay individual tax rates on their business income. So, when the Administration says it supports letting the 2001 and 2003 tax cuts expire for the top 2 percent in this country, these manufacturers are included.

Since 2007, these manufacturers organized as S-Corporations have lost more than 850,000 jobs – 42 percent of the total jobs lost in the goods-producing sector.  Increasing taxes would deal a painful blow and create more uncertainty and increase costs for an industry trying to lead our nation in recovery. 

Manufacturers have been hit hard especially as a capital-intensive business.  Manufacturer’s equipment is expensive, they have more employees and higher payroll costs, so the money flowing through their business tends to be higher. Further, the company’s profit does not equal the manufacturer’s take-home pay as they reinvest in their business with new equipment and new employees.  Often it also means building new facilities.

In a March 2010 survey of small and medium-sized manufacturers firms, 86 percent said they were concerned about the expiring tax rates – of those, 62 percent said they were very concerned.  I don’t think these manufacturers would at all agree with Secretary Geithner’s claim that these tax hikes will not have an impact on them.

With unemployment continuing to hover close to 10 percent, we will continue to urge the Administration and Congress to put policies in place that will stimulate private sector growth and jobs – which includes extending the 2001 and 2003 tax cuts.  We also encourage them to enact the policies explained in the NAM’s “Manufacturing Strategy For Jobs and a Competitive America.”

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