Tag: bush tax cuts

The Voice of Small-Business Owners on Extending the Tax Rates

If politicos and pundits are going to keep up the incessant attacks against “tax breaks for millionaires” and “tax cuts for the wealthy,” we’re going to continue to repeat the reality: More than 70 percent of manufacturers file as individuals under the U.S. tax code and could be hit by higher taxes if the 2001 and 2003 rates are allowed to expire.

That’s just a trade association spinning? Well, consider these owners of small businesses across the country, speaking from knowledge of their businesses and personal tax status. (Thanks to the office of soon-to-be Speaker of the House John Boehner for compiling these accounts.)

  • “If the tax cuts went away, [W. Shane] Reeves [co-owner of Reeves Sain drugstores] would have had to pay more in personal income taxes on his company’s profits. That would’ve affected plans to invest in information technology, add more space and expand the company’s delivery fleet.  ‘Overall, the environment we’re all in right now has got everybody nervous,’ Reeves said. ‘But with (expiration of) the tax cuts looming, it just felt like it was going to get worse.’” (The Tennessean, 12/9/10)
  • “For small business owners, the uncertainty and stakes are even greater.  … It takes capital to run a business, said Tom Mercier, owner of BOPI, a 60-employee printing and marketing logistics company in Bloomington.  …  With printing industry margins only in the 2 to 3 percent range, higher taxes complicate decisions on whether to give pay raises, and how to cover rising health care costs, he said. … The tax cuts are a hot topic for business and individual clients at Henning, Strouse, Jordan and Stephens, a tax and accounting firm in Bloomington, said managing member Mark Nicholas.  He said months of uncertainty — a bipartisan agreement was roughed out Monday — have delayed important decisions by businesses: Can we expand? Can we buy new equipment? Can we hire?  ‘People are definitely holding off on the answers to those questions,’ Nicholas said…‘The uncertainty — that’s the real problem.’” (The Pantagraph, 12/8/10)
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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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Circumnetting the Taxes, the Economy and Politics

Wall Street Journal, Stephen Moore, “Big Business to Obama: Thanks, But No Thanks“: “Business groups are nervous about likely tax increases to ‘pay for the proposed cuts, including tax hikes on energy companies and firms with overseas profits. “This would offset the positive features of any tax cuts,” one K Streeter says, adding: ‘Right now there just isn’t much trust in the business community in anything Obama does. We just want an end to the uncertainty.’”

CNN,Obama tax breaks: Limited help for small biz“: “NEW YORK (CNNMoney.com) — President Obama’s plan to offer $200 billion in tax breaks for businesses that invest in plants and equipment would likely have only a limited impact on most small businesses, experts say.”

Larry Kudlow, National Review Online, “Bashing Bush and Boehner Won’t Work“: “While Mr. Bush made plenty of economic mistakes, his 2003 reductions of marginal tax rates led to more than 8 million new jobs in the next four and a half years. Under Bush, the unemployment rate dropped to 4.6 percent…And almost all economists agree that the 2007-08 financial meltdown was a housing-bubble and credit event. It had nothing at all to do with cutting taxes.”

Wall Street Journal, Kevin Hassett, Glenn Hubbard, American Enterprise Institute, “Obama Discovers Incentives“: “Mr. Obama and his team now appear to accept that growth-oriented tax cuts provide a more reliable stimulus than government spending. The investment incentive the administration proposes is meaningful–though not without some potential pitfalls–and it offers a road map for future policy change to emphasize economic growth.”

New York Times, “Tax Cuts May Prove Better for Politicians Than for Economy“: “With Congressional midterm elections looming, the financial debate in Washington this fall will probably be consumed by one incendiary and expensive issue: whether, and how, to extend the multitrillion-dollar Bush tax cuts.”

Wall Street Journal editorial, “The Small Beer Bill: The President has an offer that business is refusing“:

[The Obama Administration's] new burdens on small business include a looming increase in capital gains and personal income tax rates, roughly half of which will come from noncorporate business profits; a minimum wage increase to $7.25 an hour from $6.55 in July 2009 when the jobless rate was 9%; the oil drilling moratorium, which has hit hundreds of small energy companies; the new health insurance mandate on employers with more than 50 employees; the new ObamaCare 1099 tax filing requirements; an increase in the death tax rate to 55% next year from zero today; a Medicare payroll tax increase to 3.8% from 2.9% starting in 2013; and compulsory unionism for government contractors and federal construction projects (Executive Orders 13496 and 13502.)

The best thing the White House could do now to help small business would be to call for a regulatory, tax and mandate moratorium. As part of his fall campaign strategy, Mr. Obama wants voters to believe that the paltry recovery has nothing to do with his policies. Small business owners know better.

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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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Taxes, Small Business and Uncertainty

Two excellent commentaries on taxes, business and the economy…

Kevin A. Hassett and Alan d. Viard of the American Enterprise Institute wrote Friday in The Wall Street Journal, “The Small Business Tax Hike and the 97 Percent Fallacy,” demonstrating that the expiration of the 2001 and 2003 federal tax cuts on individual income would indeed hit small business. The “97 percent fallacy” is a reference to Vice President Biden and House Speaker Pelosi’s argument that the higher tax rates will only affect 3 percent of small business, so what’s the big deal?

The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That’s the number to look at, not the 3%. Would Mrs. Pelosi and Mr. Biden deny that the more successful firms owned by individuals in the top income-tax bracket are disproportionately responsible for investment and job creation?

At National Review’s The Corner, Veronique de Rugy, an economist and researcher at the Mercatus Center, makes the case that the temporary tax credits and rebates that the Administration favors to spur job creation are ineffective. For example, the $1,000 tax credit for hiring — which the President wants to boost to $5,000 — is useful only if a small business has a tax liability, much less likely given the current economic climate. In her post, “More on Small Business and the Administration,” de Rugy writes:

If the administration were so eager to help businesses, large or small, it would end the constant public-policy uncertainties that businesses are facing: The health-care overhaul, which will bring new but still unknown obligations to insure employees, and legislation aimed at tackling climate change, which could raise businesses’ energy costs, add to the uncertainty about the economy. The new financial regulation, which will take years to put in place, adds its share of uncertainty, as does the potential expiration of the tax cuts. Meanwhile, as government spending increases, so do the chances of more taxes in the future.

Her arguments about the deleterious effects of uncertainty dovetail well with the conclusions of the National Association of Manufacturers’ 2010 Labor Day report, “Labor Day 2010: The Impact of Anti-Labor Policies on Working Men and Women.

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From Recovery Summer, the Tactical Move to Stimulus September

President Obama will make a statement at 10 a.m. at the White House on today’s new employment report, which showed August unemployment at 9.6 percent.

In the meantime, speculation soars about a September “stimulus” plan. The Washington Post reports, “White House considers pre-midterm package of business tax breaks to spur hiring“:

With just two months until the November elections, the White House is seriously weighing a package of business tax breaks – potentially worth hundreds of billions of dollars – to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

Running it up the flagpole, eh? Well, salud!

But it all seems so tactical, more a matter of packaging than policy. Take the research and development tax credit, for example. President Obama’s proposed budget for Fiscal Year 2011, released February 1, already called for making the R&D tax credit permanent. If you have to give it a new label, call it “Super Stimulus Innovation Jobs Great Tax Credit for Business, Business, Business,” to get it passed, fine, but the credit — first adopted in 1981 — has proved to be an effective tool for job creation and innovation that should have passed long ago on its merits.  (It’s like the Miscellaneous Tariff Bill: OK if you want to redub it the Manufacturing Enhancement Act, just get it done!)

Dena Battle, tax policy director at the National Association of Manufacturers, appeared on Fox Business News on Thursday to discuss these issues (video). Asked about the new proposals being floated, she said:

Some of the things they are talking about are good ideas. Obviously we support a permanent R&D tax credit. I think what’s really missing here are some other key elements. You’ve got these 2001 and 2003 tax cuts expiring at the end of this year, and Congress has done nothing to extend those. Businesses are looking at that, and they have no idea what tax rates they’re going to be paying next year.

You really have to do something to show businesses and give them that level of certainty right now. That has to be part of anything they’re doing for job creation.

Right. If you read toward the end of the Post story, you see a reference to the White House considering “targeted business tax breaks.” Targeted = tactical.

But as NAM President John Engler argued in his introduction to the NAM’s report, the “Manufacturing Strategy for Jobs and a Competitive America“: [We] have no battle plan, no comprehensive approach for making manufacturing in the United States more competitive, more productive and creating even more high-paying jobs. The unprecedented challenge to U.S. manufacturing pre-eminence requires clear thinking, a global vision and a plan.” That is, a strategy.

UPDATE (10:25 a.m.): President’s White House appearance amounted to a reaffirmation of his proposal for small business loans and extending “middle class tax cuts,” which is to say, letting the bulk of the 2001 and 2003 tax cuts expire. He’ll say more next week.

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